Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

PRIVATE BUSINESS

BRITISH RAILWAYS BILL

Lords amendments agreed to.

CORNWALL COUNTY COUNCIL BILL [Lords] (By Order)

Order for consideration, as amended, read.

To be considered upon Thursday 10 May.

NOTTINGHAMSHIRE COUNTY COUNCIL BILL [Lords] (By
Order)

Order for further consideration, as amended, read.

To be further considered upon Thursday 10 May.

LONDON DOCKLANDS RAILWAY (No. 2) BILL (By
Order)

Bill read a Second time and committed.

TEES AND HARTLEPOOL PORT AUTHORITY BILL (By
Order)

DARTMOOR COMMONS BILL (By Order)

orders for Second Reading read.

To be read a Second time upon Thursday 10 May.

Oral Answers to Questions

AGRICULTURE, FISHERIES AND FOOD

Fishing Licences

1. Mr. Nicholls: asked the Minister of Agriculture, Fisheries and Food whether he will make a statement on the problems involved in issuing fishing licences to the United Kingdom fishing industry.

The Minister of State, Ministry of Agriculture, Fisheries and Food (Mr. John MacGregor): Following the announcement of new pressure stock licensing arrangements on 3 February, representations were received on individual cases of eligibility for licences and on the principles of the system. After careful consideration we have modified some of the rules, in particular to allow licences for vessels acquired by fishermen who were temporarily without a vessel on 3 February but could demonstrate a recent history of pressure stock fishing. But the basic purpose of the schemes, namely the containment of the number of vessels able to fish for pressure stock, stands and has the broad backing of the fishing industry.

Mr. Nicholls: Bearing in mind the problem that United Kingdom fishermen in general could have faced with

regard to pressure licensing, is my hon. Friend satisfied that the measures that he has announced will have the widespread support of the industry?

Mr. MacGregor: Yes, I think that there is widespread recognition among fishermen of the need for some measure of restrictive licensing, although, of course, we shall wish to continue to monitor the new arrangements. However, I believe that the amended measures, which are designed both to protect the benefits of the decommissionning scheme and to tie in with the arrangements needed for quota management for conservation purposes, provide a fair and flexible basis.

Mr. Wallace: Does the Minister recognise that one of the long-term fears of the fishing industry in certain communities is that, on transfer of boats, licences may be lost from some communities which are heavily dependent upon fishing and become concentrated in a few hands? What steps does he propose to take to avert any such danger?

Mr. MacGregor: That would happen only if those who had the boats in the first place decided to get rid of them. One of the safeguards therefore lies in the hands of the fishermen themselves. However, the system is new and we shall continue to monitor it.

Mr. Austin Mitchell: For Grimsby, the main problem connected with licences is that people who may want to come into the industry in future should be able to do so and to concentrate at a port such as Grimsby.
The immediate problem for those with licences is the cod quota. Forty-five tonnes of cod per month is an inadequate catch for the cat class vessels and the pair trawlers. Will the Minister consider allowing the quota to be caught in three-monthly sectors so that vessels can catch up and lay up?

Mr. MacGregor: I have endeavoured to make the licensing system as flexible as possible, because I do not want to restrict the fishing industry too much. There must be restrictions in the case of pressure stocks, but I have attempted to give flexibility to enable fishermen to cope with such problems.
There is a later question on the Order Paper about quota management. The move to monthly quotas will undoubtedly help, and we are considering the possibility of sectoral quotas for recognised groups of vessels, which might also help ports such as Grimsby.

Mr. Kennedy: Will the Minister take careful account of the representations that he has received from the Scottish Fishermen's Federation and the Highlands and Islands Fishermen's Association about a deferment of the minimum landing size for lobsters?

Mr. MacGregor: That is a completely different question, but I can tell the hon. Gentleman that we have recently been in touch with various organisations about that matter.

Mr. Donald Stewart: As the Minister is so concerned about licensing, why does he turn his face so strongly against licensing lobster fishing boats?

Mr. MacGregor: One of the important points in that regard is that we have a minimum limit of 10 metres below which there is no licensing in the licensing system for pressure stocks. In the vast majority of cases the lobster fishing industry was looking for licensing below 10


metres. It is not clear whether we need that for conservation resons, and there are enormous administrative and other difficulties associated with operating it on that basis.

Milk Quotas

Mr. Penhaligon: asked the Minister of Agriculture, Fisheries and Food if he will allocate milk production quotas to the advantage of the small producer and milk producing areas.

The Minister of Agriculture, Fisheries and Food (Mr. Michael Jopling): I refer the hon. Gentleman to the reply that I gave to my hon. Friend the Member for Meriden (Mr. Mills) on 26 April. Initial provisional quotas have been allocated to producers related to their deliveries during the reference period, but a reserve amounting to about 2·5 per cent. of the quota has been set aside to deal with special cases, which will be carefully considered.

Mr. Penhaligon: On the whole, I interpret that answer as being no. Will the Minister partially mitigate the phenomenal social damage created by what he has so far done by quickly setting up the appeals procedure and announcing today that some financial compensation will be available to those who are most harshly affected, some of whom are in danger of going bankrupt?

Mr. Jopling: The detailed rules were finally debated in Brussels only yesterday and therefore we shall consider the details carefully. I assure the hon. Gentleman, however, that we shall move ahead with the special cases as fast as we can.

Mr. Maclean: Will my right hon. Friend take into account the special problems of small dairy producers who farm extremely wet land, such as is found in many parts of Cumbria, and therefore cannot switch into any other form of farming activity such as sheep or cereals?

Mr. Jopling: We shall examine all hard cases. I hope that we shall be able to consider the cases that my hon. Friend mentioned—he knows that I am well aware of them.

Mr. Torney: Is the Minister aware that, in addition to the hardship that will be suffered by all dairy farmers, considerable hardship will be experienced by the processing and distribution side of the milk industry? We already know that some creameries are likely to close and therefore considerable unemployment will be caused in that industry. Will the Minister assist in any way to alleviate that suffering?

Mr. Jopling: We are well aware of the problems that the imposition of the superlevy will cause in all sections of the dairy industry. I do not doubt that it will also cause problems in some processing plants, but that is an inevitable consequence of cutting production as we have. I remind the hon. Gentleman that, quite recently, the United Kingdom had about 140 tonnes of butter a day going into intervention.

Mr. Jim Spicer: I know that my right hon. Friend fully understands that the small dairy producer who has maintained his herd numbers at a constant level has not contributed to the expansion of milk production and is probably the hardest hit as a result of the base year. Will he assure us that when the appeals procedure comes into

existence it will deal with those small producers first because, at the moment, many of their provisional figures are a cut not of 9 or 15 per cent., but of 20 per cent. and more?

Mr. Jopling: I assure my hon. Friend that I shall consider the possibility of helping the small producer. That is allowed for under the rules that the Commission has examined. I hate to argue in this way, but it is not strictly true that no small producers have expanded recently. On reflection, my hon. Friend will agree that some of them have.

Mr. Nicholson: Is the Minister aware that it is clear that there will be a much greater problem of hardship cases under the EEC milk quota arrangements in Northern Ireland? I fully support the view of the Ulster Farmers Union that it is essential that the Minister introduces measures to reduce the level of hardship for Northern Ireland dairy farmers, considering that we did not get the 65,000 tonnes which the Minister was supposed to negotiate for us in the EEC. Will the Government—

Mr. Speaker: Briefly.

Mr. Nicholson: —give an undertaking that measures will be introduced to relieve the special problems of Northern Ireland dairy producers?

Mr. Jopling: In allocating United Kingdom quotas between the regions account was taken of the trends of deliveries between 1981 and 1983. Northern Ireland was given the full benefit of the 63·1 million litres from the Community's reserves. In addition, a further allocation was made to Northern Ireland so that the reduction on 1983 deliveries would be no more than in other regions of the United Kingdom.

Rev. Ian Paisley: May I remind the right hon. Gentleman that when he finished his negotiation he went public on the fact that Northern Ireland dairy interests would have a good deal and that they would be advantaged by some 63 million litres? Why is the dairy industry in Northern Ireland not advantaged at the same level as that in the rest of the United Kingdom, but is getting less for its finished quantity?

Mr. Jopling: I can only repeat the answer that I gave to the hon. Member for Newry and Armagh (Mr. Nicholson), that Northern Ireland has been given the full benefit of the 63·1 million litres which I announced in terms of 65,000 tonnes, and that in addition it has had a further allocation so that the reduction on 1983 deliveries in Northern Ireland will be no more than in other regions of the United Kingdom.

Mr. Wigley: Has the Minister seen reports today of a dairy farmer with some 60 acres who increased his production from about 8,000 litres in April 1982 to 27,000 litres last month on the advice of the Ministry, and is now facing bankruptcy? Will the Minister assure us that people in this position will get an advantage under the 2·5 per cent. to which he referred earlier?

Mr. Jopling: The hon. Member will recall that the quotas are based on 1983 deliveries, which was the most up-to-date pattern of production. I should have thought that that arrangement would particularly help the farmers whom he has in mind. As to the Government's advice, the level of production is only one factor in determining profitability and the Government have consistently


encouraged increased efficiency and better marketing. That can lead to increased profits even, in some cases, at reduced levels of production.

Mr. Colin Shepherd: Will my right hon. Friend confirm that in drawing up the present rules, arrangements, levels of quotas and so on, the Milk Marketing Board was closely consulted and involved and was highly regarded during the course of the discussions?

Mr. Jopling: The Milk Marketing Board was consulted all through this matter, right back to the point when the Commission first produced its proposals for a super-levy last July. A document which I believe the Milk Marketing Board has circulated to hon. Members says:
The milk board will be responsible for paying the levy on any milk producer in excess of quota and then recovering the relevant part of the levy from those producers who had sold to the board milk in excess of their individual farm quota.

Mr. Robert Hughes: Is not the truth of the matter that the Minister, having failed in Brussels, has now bungled the applications, to the detriment of the small producers? Given that one third of the herds are of 60 cows or fewer, would it not have been better to exempt, and will the Minister not now consider doing so, small herds from the levy and having a progressive scheme for the bigger herds so that the levy is recovered from those best able to face the difficulty? What response does the Minister have to the Milk Marketing Board's reference to the £200 million made available in Germany and the 3 billion francs made available in France for compensation? What will he do about that?

Mr. Skinner: Come on. The right hon. Gentleman has a worse record than Bobby Robson.

Mr. Jopling: The hon. Gentleman made that carefully rehearsed joke a few moments ago. I am sorry that nobody heard it the first time.
The figures given by the hon. Member for Aberdeen, North (Mr. Hughes) are not entirely accurate. As I remember, 37 per cent. of herds have fewer than 40 cows.
One must bear in mind that in France and in Germany, where a £200 million scheme has been announced to create a reserve of quota for reallocation—I believe that it is hoping that it will be 4 per cent.—the structure of dairy farming is much inferior to ours. Britain has many more viable dairy farms than France or Germany.

Tree Planting

Mr. Chapman: asked the Minister of Agriculture, Fisheries and Food what initiatives his Department is taking to encourage farmers to plant trees.

Mr. MacGregor: The development of farm woodlands is promoted by the Agricultural Develoment Advisory Service, which has recently issued a display for use at shows and other countryside functions. Grants are made available for planting trees for landscaping associated with eligible farm buildings and in less-favoured areas for shelter belts. However, the main sources of grant-aid for tree planting on farms are the Forestry Commission and, for smaller areas of amenity planting, the Countryside Commission.

Mr. Chapman: I am grateful to my hon. Friend for that reply. As many of our rural landscapes have been dramatically changed for the worse in recent years, not only through tree diseases and drought, but through far too

much uprooting of our hedgerows—the rural seedbed of much of our tree stock—is not the time appropriate to follow up the successful "Plant a Tree in '73" campaign with a voluntary campaign directed particularly at farmers to encourage them to plant many more in the autumn of '84?

Mr. MacGregor: I shall certainly give some thought to that suggestion. Many farmers voluntarily engage in big tree planting operations on their own account. My hon. Friend will know that we took steps last year to end all grants for the uprooting of hedges and that they are now no longer available. The Ministry, under the farm capital grants scheme, offers grants of 60 per cent. in less-favoured areas for the planting of trees as shelter belts and in all other areas for the planting of trees as a landscape feature associated with farm buildings. Therefore, we give positive encouragement.

Mr. Bermingham: What incentive does the tenant farmer have to plant trees, bearing in mind that the protection of succession that he had under the 1976 legislation is shortly to be removed?

Mr. MacGregor: The hon. Gentleman knows, because he has been very much involved in our discussions on the Agricultural Holdings Bill, that that is intended to stop the decline in tenanted farms and to start to get new tenancies on to the market. Most of those tenant farmers will have a long period during which many of them will take advantage of the incentives to plant trees.

Mr. Crouch: Is my hon. Friend aware that I wrote to my right hon. Friend the Minister of Agriculture, Fisheries and Food last autumn pointing out that many farmers were burning down hedgerows and trees in the process of straw and stubble burning? Will he remind them not to do that again and to replace those trees that have been burnt down?

Mr. MacGregor: I am conscious of that problem. My hon. Friend will know that much tougher model bylaws for local authorities on the burning of straw and stubble have been agreed, which I hope will go a long way towards dealing with the problem of the destruction that is sometimes caused.

Beef Cows

Mr. Farr: asked the Minister of Agriculture, Fisheries and Food what will be the effect on beef cow numbers of recent decisions by the European Economic Community Council of Ministers of Agriculture.

Mr. MacGregor: It is too early to forecast the precise effect of the recent CAP price settlement on beef cow numbers, but specialist beef producers will benefit significantly from the Government's recent decision to double the rate of suckler cow subsidy payable in Great Britain to the maximum amount permitted under Community rules. Those in marginal areas will also benefit from the introduction next year of hill livestock compensatory allowances as a result of the recent extension of the less-favoured areas.

Mr. Farr: Notwithstanding those two useful points, is it not a fact that the recent decision on milk has been a major blow to what one would call the balance of agriculture? Must it not now be the chief concern of my hon. Friend the Minister of State and my right hon. Friend


the Minister to seek to restore that balance to try to give some encouragement to those engaged in livestock production in Britain?

Mr. MacGregor: If my hon. Friend is referring to the milk arrangements, I must tell him that much will depend on the reactions of individual producers. I think that they will vary widely. The amount of meat available on the market could have the short-term effect of depressing prices. However, the more stable and better balanced conditions for milk over the period ahead will help to balance the market in the medium to long term. We have taken a number of steps, some of which I have referred to. The retention of the beef variable premium scheme, which is still at a better level than in 1982, the new carcase classification grid and achieving a better balance between cereal and livestock prices will all help.

Mr. Key: Will my hon. Friend also undertake to consider the position of farmers who are excluded from taking advantage of the changes in the arrangements? I refer to the small dairy farmers who, because of their farm agreements, are specifically forbidden to undertake anything but dairy farming and who now have nowhere to go.

Mr. MacGregor: My hon. Friend refers to the impact on the conditions of the development plans. We are examining that matter closely.

Newcastle Disease

Mr. Colin Shepherd: asked the Minister of Agriculture, Fisheries and Food how many cases of outbreaks of Newcastle disease have been reported to him; and if he will make a statement.

Mr. Jopling: Seventeen outbreaks of Newcastle disease have been confirmed to date. In all but one outbreak on which investigations have been completed a link has been established with raw material for feedingstuffs contaminated by diseased feral pigeons. Measures have been taken to ensure that the possible risk to poultry from such raw materials is minimised.

Mr. Shepherd: Is my right hon. Friend aware of the marked lack of confidence and concern in the poultry sector at the long-term nature of the infected feral pigeon problem? Will my right hon. Friend be more specific and outline the arrangements for preventing the further infection of silos? What investigations are being made on the various options open to the Ministry for minimising the risk for the future?

Mr. Skinner: It is the hon. Gentleman's fault. Blame the pigeons.

Mr. Speaker: Order.

Mr. Jopling: My hon. Friend will recall that we took legislative measures which quickly strengthened our powers to act so that contaminated material leaves stores only under strict Ministry control. Diseased pigeons associated with stores have been detected only in the Liverpool and Birkenhead area. The degree of risk depends upon the extent to which contamination has occurred in a particular store.

Mr. Maginnis: Will the right hon. Gentleman acknowledge that the high standard of poultry husbandry in Northern Ireland means that no cases of Newcastle

disease have occurred there for many years? Will he encourage the poultry industry in Northern Ireland by ensuring that we receive an allocation of intervention grain again this year?

Mr. Jopling: I am grateful to the hon. Gentleman for that intervention. Any action that he can take to stop pigeons from Liverpool and Birkenhead going to Northern Ireland would be welcome.

Mr. Mark Hughes: Will the Minister assure the House that no gap remains in legislative control which will allow potentially contaminated foodstuffs to be supplied to poultry producers? There is still a fear that that can happen. What control is there over infected feral pigeons?

Mr. Jopling: The legislative steps that I announced to the House some weeks ago to deal with these matters have been widely welcomed. Contaminated material from stores in areas where diseased pigeons have been discovered can leave those stores only under strict Ministry control.

Dairy Farmers (Assistance)

Mr. Stephen Ross: asked the Minister of Agriculture, Fisheries and Food what financial assistance he is prepared to make available to smaller dairy farmers, whose income has been substantially reduced following the recent price review.

Mr. Jopling: As part of the agreement to introduce the supplementary levy scheme for milk, agreement was reached to extend the Community scheme to aid the incomes of small-scale milk producers for a further two years. There are also provisions; which may benefit smaller producers, in the Community regulations on the supplementary levy scheme for special allocations of milk quota to a producer who is implementing, or has recently implemented, a milk production development plan under either an FHDS or AHDS scheme.

Mr. Ross: Has the Minister seen the press release, which I believe has been sent to most hon. Members, by the Milk Marketing Board which makes very dismal reading? Will the collection of the levy be delayed for some time? Will the right hon. Gentleman introduce a scheme similar to that introduced by the Germans and French—his answer to an earlier question on that was disappointing — under which about 200 million deutschmarks will be given by the Germans and umpteen million francs by the French to help producers who want to leave the dairy industry? Further, will he do something for the producer-retailers to help sort out the mess in which they find themselves? Will he do something to put a bottom into the cow beef market, which would seem a sensible step to take?

Mr. Jopling: I am pleased to report to the House that the Commission has agreed to lump the first two payments of levy together. As a result, the first levy payments do not have to be collected until 45 days after the end of September—that is, by mid-November at the latest—and the hon. Gentleman will agree that that is a good move forward, which will help many milk producers.
As for the outgoers' scheme, which has been announced by Germany and to which the hon. Member for Aberdeen, North (Mr. Hughes) referred earlier, I understand that, for instance, the Netherlands and


Denmark have not announced schemes. The fine print and details of the regulations were discussed in Brussels only yesterday, and we shall be considering that provision carefully.

Sir Peter Mills: While congratulating my right hon. Friend on that announcement, may I ask him to consider seriously a national scheme to allow, on a voluntary basis, dairy farmers to get out, as other countries are introducing such schemes? The milk quota could then be reallocated. Is he aware that it would be a serious blow to British dairy farmers if other Community countries made such arrangements and we did not?

Mr. Jopling: My hon. Friend will realise that the regulations came to fruition very recently indeed. Although a number of states, including ourselves, voted against them in Brussels yesterday, because certain details of them remain unsatisfactory, I hope that we can get them right. I hear what my hon. Friend says about the outgoers' scheme and the fact that it seems to have been taken up by some states and not by others.

Mr. Molyneaux: As the discussions and consultations with the Milk Marketing Board in Northern Ireland have been minimal, and regardless of what the right hon. Gentleman said in answer to an earlier question, may I ask him to publish a White Paper setting out all the facts and figures governing the allocation and arrangements for the milk quota scheme in Northern Ireland?

Mr. Jopling: I do not think that it is necessary to produce a White Paper on this matter. I am grateful to the right hon. Gentleman for not making the accusation that was made earlier, that Northern Ireland had been deprived of the 65,000 tonnes allocated to it. I am glad that he did not repeat that statement, which was wrong.

Mr. Hunter: In the light of the concern that is being expressed in some quarters about the volume of dairy products that we are importing from New Zealand, may I ask my right hon. Friend to comment on the possibility or otherwise of that being reviewed?

Mr. Jopling: The Council of Agriculture Ministers will be meeting on Monday and Tuesday of next week, when the import arrangements for New Zealand will be an important matter for discussion. As my hon. Friend probably knows, the Commission's proposal is that this year 83,000 tonnes of butter should be imported from New Zealand, falling over each of the next five years by 2,000 tonnes, to 75,000 tonnes. The Government believe strongly that we should give that market to New Zealand, as it is essential to it, and we shall be pressing the Council next week to adopt that proposal of the Commission.

Mr. Robert Hughes: Notwithstanding the slight difference over figures that arose between us during an earlier question, will the Minister accept that by far the best way of providing assistance to smaller producers is to exempt them from the levy and to have a sliding scale upwards above a certain figure for larger producers? Now that the date of the collection of the levy has been postponed, will the right hon. Gentleman take this opportunity to rediscuss the matter with those involved in the industry to ascertain whether such a scheme can be formulated? That would do far more to help than dealing with the 2·5 per cent. reserve to which he referred earlier.

Mr. Jopling: I am surprised that the hon. Gentleman is saying that small farmers should be exempted from the

levy. He will recall that we have been insistent, throughout the negotiations that have taken place over the past eight or nine months on the super levy, that small farmers throughout the Community should not be exempted from the levy. Such an exemption would discriminate very much against the British dairy industry and I am most disappointed to hear that the Opposition are taking that approach.

Mr. Hughes: That is a distortion of my supplementary question.

Common Agricultural Policy

Mr. Baldry: asked the Minister of Agriculture, Fisheries and Food what has been the overall effect of the common agricultural policy on British farming and on the consumer since the United Kingdom joined the European Economic Community.

Mr. Jopling: It is, of course, a matter a conjecture what other policies might have been pursued had we not joined the European Community, and any measurements of the kind envisaged would equally be quite conjectural.
I would point out, however, that since 1972 our agriculture industry has succeeded in raising the volume of its gross output by 14 per cent. and in raising the nation's self-sufficiency for temperate-type food from 63 per cent. to 76 per cent. At the same time, retail food prices have not increased faster than prices in general.

Mr. Baldry: Will my right hon. Friend confirm that since we joined the Community net exports of British food have increased by about 77 per cent.? Indeed, France and the Netherlands are now net importers of butter from the United Kingdom. Will he confirm also that we are now self-sufficient in beef and for the first time are net exporters of cereals? As my right hon. Friend confirmed, food prices have declined relative to other prices. Does he accept that our membership of the Community has been of considerable benefit to the British farmer and British consumer?

Mr. Jopling: I am happy to confirm what my hon. Friend has said. Our participation in the common agricultural policy has been good for consumers, for agriculture and for the nation generally.

Mr. Deakins: Does the Minister recall that when we entered the Common Market in 1972–73 one of the major arguments was that the CAP would be bad for Britain and that we would gain compensating economic advantages from access to an industrial free trade market? Surely the CAP has been a disaster for the British economy, as was forecast at the time. The Minister should recognise that and turn to his right hon. Friend the Secretary of State for Trade and Industry for confirmation of such beneficial effects, if any, that have come to Britain from our membership of the Community.

Mr. Jopling: The hon. Gentleman is wrong. He will recall that the Conservative party was elected to Government in 1970 on the policy of shifting from the old system of deficiency payments and guaranteed prices to a system of support based on import levies, which is virtually the same as the CAP system. We were elected on that policy, irrespective of whether we joined the Common Market, and we believe that it is the best policy for Britain.

Mr. Jackson: Does my right hon. Friend agree that the period of expansion for British agriculture since 1973 has


produced an expansion of farm borrowings? Will he take the opportunity to urge bank managers to take a cool, calm and collected view of farmers' borrowings until the uncertainties about quotas are finally resolved?

Mr. Jopling: I have noted what my hon. Friend has said. Borrowings by British agriculture have increased, but I believe that it is generally agreed that they are at a prudent level. I hope that in this period of difficulty, especially in the dairy sector, the banks will be as tolerant and helpful to their dairy farmer customers as possible.

Mr. Mark Hughes: Will the Minister reconsider his reply to my hon. Friend the Member for Aberdeen, North (Mr. Hughes)? Although a European-wide operation to remove small farmers from the dairy levy is unacceptable, it is entirely within the power of the right hon. Gentleman and the Government to arrange our domestic affairs so that the small farmers have less of a burden to pay and a greater burden is placed on the larger farmers.

Mr. Jopling: I hope that the hon. Gentleman and the hon. Member for Aberdeen, North (Mr. Hughes) will forgive me if I have not answered that question. I thought that it was right to put our general principles on the line. I am glad that there is now sweetness and light between our two parties over this basic part of the Government's policy. The rules of the Community, when considering reallocations of quotas that become unused, provide for a move in favour of the small farmer. We shall be considering that point carefully.

Milk Quotas

Mr. Colvin: asked the Minister of Agriculture, Fisheries and Food if he will consider making special provision to help those dairy farmers forced out of milk by the quota scheme but still committed to the farm and horticulture development scheme.

Mr. Jopling: A reserve quota of about 2·5 per cent. of the total England and Wales Milk Marketing Board quota has been set aside to assist producers who have been severely affected by special circumstances or who have development plans. I hope this reserve will help those who are in the process of expanding to remain in milk production if they wish to do so. Any producer with a development plan who wishes to go out of milk production will have his request considered on its merits.

Mr. Colvin: I thank my right hon. Friend for that reply, which shows that he appreciates that it will be extremely difficult for dairy farmers to fine tune production. A dairy cow is not something one can turn on and off like a tap. Will my right hon. Friend go further and suggest to the Milk Marketing Board that it considers a scheme to set aside part of the Co-responsibility fund—money which is paid by dairy farmers—to provide, say, a 1 per cent. buffer above and below the quota figure, a measure which would reduce the risk of penalty to dairy producers?

Mr. Jopling: I do not believe that it would be within the rules for the Government or the Milk Marketing Board to keep aside some of the money paid into the Co-responsibility fund. We have always been prepared to be sympathetic if farmers get into difficulty. In certain cases we have been able to agree to withdrawals from those plans without penalty.

Mr. Geraint Howells: If a new entrant buys a non-dairy farm, will he be allowed to change the policy on that farm to make it a dairy farm?

Mr. Jopling: That is one of the matters we must consider in detail now that we are at last reaching a point when we know what the detailed rules of the super levy arrangements will be. The hon. Gentleman's question is one that we shall be considering carefully and urgently.

Mr. Maxwell-Hyslop: Will my right hon. Friend invite his colleagues to bear constantly in mind the position of a tenant farmer producing milk who has not expanded his output since 1981 and is giving up 2·5 per cent. of his quota as well as a general 6·5 per cent. of the quota? If he is forced out of milk production and his tenancy, because the land cannot be used for any other form of farming, he loses not only his job but his home. His position differs from that of people in other industries, for example, steel—which are subjected to EEC quotas — and to whom compensation is paid. A person displaced from such industries does not lose the roof over his head.

Mr. Jopling: In deciding which year to make the base year for quotas, one chose 1983 for the most up-to-date patterns of production. One faces an inherent difficulty when considering people, such as those to whom my hon. Friend referred, who have not expanded since 1981. I agree that this is a difficult matter, and I hope that we can look at the specific problems. I hope that the housing problem to which my hon. Friend referred will not occur on a large scale. If they do, naturally I hope that we can give a little thought to them in talks.

Mr. Mark Hughes: After three attempts, I am glad that we have persuaded the Minister to confirm that he has room for considerable manoeuvre under the rules on the application of quotas and that he will consider the scheme that we have suggested to him.

Mr. Jopling: I am glad to repeat what I said earlier. We shall look at the possibilities during the next few weeks.

PRIME MINISTER

Engagements

Mr. Simon Hughes: asked the Prime Minister if she will list her official engagements for Thursday 3 May.

The Prime Minister (Mrs. Margaret Thatcher): This morning I presided at a meeting of the Cabinet and had meetings with ministerial colleagues and others. In addition to my duties in the House I shall be having further meetings later today.

Mr. Hughes: Will the Prime Minister reflect on the fact that since she moved into her two new houses five years ago the number of homeless people in Britain has increased from 57,000 to 80,000? Will she further reflect that since she took on her new job five years ago the number of jobless has increased from 1·25 million to 3 million? If she fulfils her determined plan to be in office for another five years, are we to expect more than 100,000 homeless and more than 5 million unemployed?

The Prime Minister: Since one moved in some five years ago, 1·4 million more people own their own homes,


the dwelling stock has risen by 700,000 and the spending on home improvement has multiplied eight times. With regard to those people unfortunately without a job, I remind the hon. Gentleman that the proportion of the population in work in Britain is better than in most other European countries in the Community—and certainly higher than in France.

Mr. Kilfedder: In view of the allegation made by some nationalist politicians, who produced the Dublin forum report yesterday, that the Government are responsible for a political vacuum in Northern Ireland, will the Prime Minister point out—at least to those who are genuinely concerned about that part of the United Kingdom—that the Northern Ireland Assembly still exists despite attempts to destroy it before it has had a reasonable trial? Will she further point out that the Assembly is working energetically within its limitations to deal with the realities of the present position in the Province and is attempting to help Protestants and Roman Catholics alike?
Will the right hon. Lady urge those constitutional politicians boycotting the Assembly to take their places and participate in the dialogue with the elected representatives of different political and religious groups?

The Prime Minister: I agree with the hon. Gentleman that those elected to the Northern Ireland Assembly—with which he has a distinguished connection—can freely express their views there, as they were elected to do.

Mr. Kinnock: On this election day, will the Prime Minister tell us whether she is glad or sorry that she, who was going to roll back the state, has actually brought a greater concentration of power to the central state than. ever before in British peace-time history?

The Prime Minister: That just is not true. We have abolished controls on prices, incomes, industrial development certificates, office development certificates, and also abolished many other controls, including exchange control. We have reduced the number of civil servants by the greatest number since the war.

Mr. Kinnock: The Prime Minister either does not know what she is doing or she has a very selective view of the past five years. Does she not recall that she has deprived 13 million people of their votes in the Greater London and metropolitan areas? Does she not understand the effect of imposing penalties and rate-capping on local services that are a matter of life and death for many people? Does she not understand the effect of making £8·8 billion worth of cuts in rate support grant on people whose rates have shot up because of that action? Does she not recall that is she who has made political obedience a condition of appointment to senior positions in the Civil Service, nationalised industry boards, wages councils and many other bodies, such as the area health authorities? If the right hon. Lady does not think that that is a process of centralisation and the assertion of central state control, she does not understand the word democracy.

The Prime Minister: With regard to what the right hon. Gentleman says about rates—I understand that he did not quarrel with any of my previous replies because they were all deadly accurate—in the four years from 1979 to 1983, prices rose by 55 per cent. and earnings by 65 per cent., but domestic rates went up by an average of 91 per cent. In 10 local authorities, mainly Labour-controlled, rates increased by 145 per cent. If people

cannot look to the Government to protect them, to whom can they look, especially when one of the functions of Parliament, although the right hon. Gentleman does not recognise it, is to check tax, including rates, and not to increase it as he would like to do?

Mr. Kinnock: The Prime Minister is the highest-taxing Prime Minister in the history of the British economy. Does she not realise that the effect of her policies has been to increase the rate burden on households from an average of £2·46 in 1979 to ·6 in 1984? If the right hon. Lady is so keen on cutting taxes, why does she not start now for the poorest in our society, instead of making them pay for the ridiculous ambitions of her policy of starving this country into solvency?

The Prime Minister: The right hon. Gentleman is complaining about the height of rates, so he must be for rate-capping.

Mr. Warren: Will my right hon. Friend, in her gallant and worthy attempts to roll back the state's industrial frontiers, accept the fact that the appalling argument between the steel men and the miners' leaders is one where the suicidal stupidity of the miners' leaders is hallmarked by Mick McGahey's remarks yesterday, when he said that by closing down industry he would not lose jobs? Is not the conflict one between the steel men, who know that only customers make jobs, and the miners' leaders, who do not know how to keep jobs?

The Prime Minister: I agree very much with my hon. Friend. The steel industry is a very good customer to coal and one would think that an industry wanting a good future would be careful to keep its customers.

Mr. Hickmet: Does my right hon. Friend agree that it is time for ISTC, NUR, ASLEF and other unions to abandon their support for the strike among some miners, especially when one bears in mind its disastrous effect on job prospects at Ravenscraig and Scunthorpe? Do not the actions of some miners' leaders demonstrate the ruthless political means they are prepared to use to achieve their objectives? Will my right horn. Friend find time today to inform the Leader of the Opposition that Conservatives, who represent the workers of this country, do not expect steel workers to pay 50p a week to striking miners?

The Prime Minister: I thank my hon. Friend. The fact is that strikes lose jobs, sometimes in the industry in which the strike occurs and sometimes in other industries as well. The right hon. Gentleman the Leader of the Opposition is the strikers' friend.

Mr. Steel: Will the Prime Minister reassure the House that, contrary to newspaper speculation, she will honour her commitments to the nursing profession and implement the recommendations of the nurses' pay review body?

The Prime Minister: The review body report on nurses' pay has reached the Government, as have the reports of other review bodies. We shall be considering them together and hope to be in a position to make a statement after the Whitsun recess.

Mr. John Townend: asked the Prime Minister if she will list her official engagements for 3 May.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Townend: Will my right hon. Friend take time today to reconsider the barristers' monopoly of right of


audience in the higher courts in the light of her remarks in January that the Government wanted to be seen to be tackling all monopolies, including those in the professions?

The Prime Minister: As my hon. Friend will know, that question was considered by the Royal Commission on legal services under Lord Benson, which reported that it would be against the interests of the client to extend the solicitors' right of audience from the lower to the higher courts. The Government accepted that advice in 1983, and it is too early to reconsider it.

Mr. Dormand: In response to Opposition Members' questions about the mining dispute and investment in the coal industry, the Prime Minister has several times said that the NCB should be allowed to get on with its job without Government interference. If that is the Government's policy and philosophy towards the nationalised industries, why, last year, did they force both the gas and electricity boards to put up their prices substantially, against their commercial judgment and in the face of their publicly stated objections?

The Prime Minister: The Government set objectives, including financial objectives, which are supposed to give a good return on taxpayers' money and which sometimes result in subsidies to the nationalised industries. The Government also set the external financing limits and then, broadly speaking, they leave management to get on with the job. That is what they are doing in the coal industry.

Mr. Penhaligon: asked the Prime Minister if she will list her official engagements for Thursday 3 May.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Penhaligon: On the fifth anniversary of the date on which the Prime Minister succeeded to office, would she care to reveal to the House what she believes to have been her biggest mistake so far?

The Prime Minister: Not enough to reveal.

Mr. Gould: What happened to the £457 million refund from the EEC which the Prime Minister told us she had negotiated? What happened to the 31 March deadline, the date by which, she told us, payment would be made, and what happened to the tough action which she said would be taken if payment were not made by the due date?

The Prime Minister: The 850 million ecu refund that has been negotiated for 1983 should, by virtue of the Stuttgart communiqué, have been repaid by 31 March this year. But the agreement is not legally binding. It was an agreement between Heads of Government, which I am the first to say—and which I do say to other Heads of

Government—they have gone back on. They will not all accept that, because they say that they did not agree to the communiqué. It was an agreement by word among Heads of Government in the communiqué. It is not a legally binding agreement, and so technically the Community is not in default. If we were to withhold at present it would be contrary to international law.

Mr. Baldry: Has my right hon. Friend had a chance to study yesterday's CBI survey, which shows that orders and optimism in industry are now greater than they have been for many a year, with healthier order books, higher output and high hopes for the coming year? Does not that survey show that Conservative economic policies are continuing to lead Britain back to economic prosperity?

The Prime Minister: Yes, Sir. The CBI survey was very good and optimistic this month. Industry now has a chance, because this Government have cut inflation to its lowest level for 15 years, manufacturing productivity has increased by 14 per cent., interest rates are 3 per cent. lower, and Government borrowing has fallen from 5·5 per cent. of gross domestic product to 3·25 per cent. Once again growth is increasing and is greater than in any other country in the Community.

Mr. Stephen Ross: asked the Prime Minister if she will list her official engagements for Thursday 3 May.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Ross: As the Prime Minister is determined to abolish the metropolitan counties and return those areas to single-tier authorities, will she consider providing my constituency of the Isle of Wight, which is the most over-governed constituency in the country, with one all-purpose authority, for which we would give three hearty cheers?

The Prime Minister: I am delighted to know that the hon. Gentleman is a great supporter of the Government's decision to abolish the GLC and metropolitan county councils. I thank him for his support and I shall ask my right hon. Friend the Secretary of State for the Environment to consider his request.

Mr. Gregory: Will my right hon. Friend impress upon the Government of Zimbabwe the importance of Bishop Able Muzorewa, who has been held for a considerable time, being brought to trial as soon as possible?

The Prime Minister: I am aware of that, but it is a matter for the Government of Zimbabwe and it is a matter in which we must not interfere. The bishop is not a British citizen, unlike other citizens on whose behalf we have made representations.

Business of the House

Mr. Neil Kinnock: Will the Leader of the House state the business of the House for next week?

The Lord Privy Seal and Leader of the House of Commons (Mr. Biffen): Yes, Sir. The business for next week will be as follows:
TUESDAY 8 May—Second Reading of The Cable and Broadcasting Bill (Lords).
Motion on European Community documents on the European regional development fund. The relevant numbers will appear in the Official Report.
WEDNESDAY 9 MAY—Progress in Committee on the Local Government (Interim Provisions) Bill.
Motions on the Agriculture (Miscellaneous Provisions) (Northern Ireland) Order and on the Fines and Penalties (Northern Ireland) Order.
THURSDAY Io MAY—Further progress in Committee on the Local Government (Interim Provisions) Bill.
Motions relating to the Supplementary Benefit (Conditions of Entitlement) Regulations and the Supplementary Benefit (Single Payments) Regulations.
FRIDAY 11 MAY—There will be a debate on policing in the Metropolis, on a motion for the Adjournment of the House.
MONDAY 14 MAY—Progress on remaining stages of the Police and Criminal Evidence Bill.
[European Community Documents and relevant Reports of European Legislation Committee, debate on Tuesday 8 May.
European Regional Development Fund
The following documents are relevant:
a. 8833/81 New regional policy guidelines
b. 12104/82 Special report of the Court of Auditors on job-creation in the granting of aid to regional investments
c. 11232/82 Second series of specific Community regional development measures
d. 9449/83 Aid from the ERDF for infrastructure projects
e. 9361/83 Eighth Report on the activity of the ERDF in 1982
f. 9938/83 Amendments to draft Regulations concerning measures under Article 13 of the ERDF Regulation
g. 10705/83 Amendment to Regulation establishing ERDF
Relevant Reports of the European Legislation Committee
a. HC 32-xxxiv (1980–81) para. 2
b. HC 34-xii (1982–83) para. 1
*c. HC 34-viii (1982–83) para. 1
d. HC 78-iv (1983–84) para. 2
e. HC 78-v (1983–84) para. 7
*f. HC 78-viii (1983–84) para. 7
g. HC 78-xi (1983–84) para. 5.]

Mr. Kinnock: Can I notify the right hon. Gentleman that on Tuesday we shall want a three-hour debate on the European regional development fund? I hope that he can allow time for that business. Does he agree that it is ironic that on the day when millions of people will vote in local elections, he announces that next Wednesday and Thursday the House will debate a paving Bill, which will result in the removal of voting rights from 30 million people in the GLC area and metropolitan counties? I and

many other hon. Members, including Conservative Members, should like the Government to remove the business. If the right hon. Gentleman cannot do that, can he arrange to split the business so that we debate the issue on two separate days, with an intervening period, not only for purposes of rest and recuperation, but also reflection on the business undertaken on the first day?
In the light of the publication of the new Ireland forum report, we should like a full day's debate in Government time as soon as possible. The report represents a unique initiative in recent Irish history and deserves the thorough attention of the House, as the right hon. Gentleman will agree.
In view of the fact that British Airways announced a post-tax profit of £181 million, will the right hon. Gentleman arrange a debate in Government time about the future of British Airways so that before the Government take the irrevocable step of privatising British Airways, we have time to pause and reconsider the acceptability of the denationalisation of this major asset of British taxpayers?

Mr. Biffen: Perhaps I could reply to the right hon. Gentleman's points in the order in which they were presented. First, I am happy to confirm that on Tuesday provision has been made for a three-hour debate on the motion of the European regional development fund.
I have also noted the right hon. Gentleman's wish that the Local Government (Interim Provisions) Bill should be so structured as to provide orderly and expeditious progress. If that can be secured through the usual channels, I would join him in a sense of relief and satisfaction.
The right hon. Gentleman said that he wishes to have a debate in Government time on the measured and significant report of the new Ireland forum, which I am sure will be of great interest to the House. He also wished to have a debate on the remarkable success story of British Airways, as revealed by its latest accounts. I cannot guarantee that Government time will be available in the near future for such debates, but we can consider the matter through the usual channels.

Mr. John Stokes: My right hon. Friend will remember that I wrote to him some time ago informing him that I had asked the Secretary of State for Defence to make arrangements for colleagues to attend the D-day ceremonies in Normandy next month. I confidently expect a favourable reply from the Ministry, but I should be most glad to have my right hon. Friend's support so that we know the arrangements in good time.

Mr. Biffen: I thank my hon. Friend for raising that point, and I shall do all I can to facilitate an answer.

Dr. David Owen: Given the widespread sentiment in the House that there should be an independent inquiry into the circumstances associated with the killing — [Interruption.] Given the widespread sentiment associated with the killing of WPC Fletcher, and given the impossibility of anyone putting down a motion for a vote in the House other than the Government or the Leader of the Opposition, will the Leader of the House, in acknowledgement of his responsibility to all hon. Members allow a motion for the establishment of a small all-party committee of Privy Councillors to consider this matter?

Mr. Biffen: No, I cannot helpfully add to the contents of the letter which my right hon. Friend the Prime Minister wrote to the right hon. Gentleman.

Dr. Owen: But the right hon. Gentleman is the Leader of the House.

Mr. Jonathan Aitken: Further to the Leader of the Opposition's request for a debate on the future of British Airways, would my right hon. Friend welcome that and could we debate it in the exact terms of the right hon. Gentleman's request, which were that the House would welcome—although he did not say that—the irrevocable decision to privatise British Airways?

Mr. Biffen: If the Leader of the Opposition so happily phrased his words that they have that compulsive attraction to my hon. Friend, that must make this matter an obvious subject for an Opposition Day debate.

Mr. Harry Cohen: Is the Leader of the House aware that this morning the police arrested and detained Afia Begum and her daughter Asma, whose case I raised in the House on 7 March? In view of that, will he bring before the House without delay my Entry Clearance (Change of Circumstances) Bill, which relates to this case? Will he also make representations to the Home Secretary not to deport Afia and Asma until the House has considered the Bill and the European Court of Human Rights has heard this case? In the interim, will he make representations for Afia and Asma to be released immediately?

Mr. Dennis Skinner: Give them the Zola Budd treatment.

Mr. Biffen: I cannot offer the facilities for the hon. Gentleman's private legislation, but I shall of course draw the points that he has made to the attention of my right hon. and learned Friend the Home Secretary.

Mr. Nicholas Soames: Now that my right hon. and learned Friend the Foreign Secretary has returned from his visit to Hong Kong, could time be found to debate the future of Hong Kong?

Mr. Biffen: I very much hope that there will be a debate in the week beginning 14 May.

Mr. Stuart Bell: In the light of that answer about a debate on Hong Kong, can the Leader of the House recommend that the same conditions of independence for Hong Kong will be accorded to the Falkland Islands?

Mr. Biffen: That relates to the content of the debate. I am mainly concerned with its timing.

Sir Frederic Bennett: In view of the appallingly worsening position in Afghanistan, which not only has the largest refugee problem in the world but where more Afghans have been killed than the number of British casualties in the second world war, and since it is clear that the well-meant attempts of the Secretary-General of the United Nations to bring about a settlement have, unfortunately, failed completely, if we cannot have a debate on what is easily the biggest tragedy in the world at present, could we have a statement soon from my right hon. and learned Friend the Foreign Secretary about the policies that he will advocate in view of the failure of the United Nations to resolve this matter?

Mr. Biffen: I accept at once the importance of the topic raised by my hon. Friend and I shall certainly ensure that my right hon. and learned Friend the Foreign Secretary is made aware of his anxiety that a statement should be made.

Mr. Skinner: Does the Leader of the House not think that it is high time we had a debate on the mining industry in view of the fact that since the dispute began there has been only one debate—under Standing Order No. 10? Does he not think that we should have a full-scale debate so that we can draw attention to the fact that in the think tank report it is disclosed that £1·3 billion is being disposed of by the Department of Trade and Industry, and that every farmer receives £20,000 out of the CAP and £7,000 subsidy per employee? If miners got the same treatment, there would not be a single uneconomic pit in Britain.

Mr. Biffen: I shall resist the temptation to try to answer the content of the question. In regard to timing, I cannot offer the prospect of a debate on the mining industry next week, but this matter will be kept under constant review.

Mr. Ivor Stanbrook: If my right hon. Friend is disposed to give the House an opportunity to discuss the report of the new Ireland forum, will he ensure that the debate covers the more valuable reports on constitutional reform in Northern Ireland issued by the Unionist parties of Northern Ireland—who are, after all, British citizens?

Mr. Biffen: I am very happy to join my hon. Friend in paying tribute to those reports. We are some way away from any debate and as we approach that point no doubt we can think more productively about the terms of the debate.

Mr. Stephen Ross: Although we support the request for a debate on the report of the new Ireland forum, and also the recent proposals of the Unionists for devolution in Northern Ireland and the EC report, which is a very good one, it would be a good idea if these matters were debated in the House in the not-too-distant future.

Mr. Biffen: I take note of what the hon. Gentleman has said. In particular, I note that he places the Unionist party report alongside that of the new Ireland forum.

Mr. Nicholas Baker: Does my right hon. Friend share my concern at the regrettable action being taken by teachers? In the event of the examinations faced by many pupils being disrupted, will my right hon. Friend consider giving parliamentary time for a discussion of this serious and grave action?

Mr. Biffen: I take note of what my hon. Friend says. As he will realise, we are moving into a rather congested period of the year for parliamentary business, but I shall certainly draw his remarks to the attention of my right hon. Friend the Secretary of State for Education and Science so that he may take account of them and keep the house informed as he thinks appropriate.

Mr. D. N. Campbell-Savours: Is the Leader of the House aware that Labour's attempt last night to amend the Finance (No. 2) Bill to increase the rate of supplementary benefit paid to the long-term unemployed was defeated heartlessly by the Government? In so far as it is clear that the Government do not understand what poverty and need are about, can we have a debate in Government time on the single and important subject of poverty?

Mr. Biffen: We had a debate last night and clearly there were not enough Members—

Mr. Skinner: My hon. Friend was there.

Mr. Biffen: What about the missing millions? This subject will doubtless be a continuing part of the economic debate which divides the House and on which so far the hon. Gentleman has been unable to convince the nation.

Sir Geoffrey Finsberg: In connection with the paving legislation, the Local Government (Interim Provisions) Bill, to be debated next week, will my right hon. Friend accept that those of us on these Benches who endorse the legislation and who have not been taken in by Socialist propaganda on the subject feel that it is time my right hon. Friend introduced legislation to prevent authorities from wasting ratepayers' money on political purposes?

Mr. Biffen: I note what my hon. Friend says and I will ensure that his views are conveyed to my right hon. Friend the Secretary of State for the Environment.

Mr. Geraint Howells: Is the right hon. Gentleman aware that confidence in the dairy industry is at a very low ebb? In view of the present proposals and the anxiety felt within the industry, is the right hon. Gentleman willing to let us have a debate on the Floor of the House so that the dairy producers can know exactly where they go from here?

Mr. Biffen: No provision has been made in the business that I have announced, but I will draw the attention of my right hon. Friend the Minister of Agriculture to the points raised by the hon. Member.

Mr. David Harris: May I reinforce the plea of the hon. Member for Ceredigion and Pembroke, North (Mr. Howells)? My right hon. Friend was present for recent exchanges and heard the concern expressed by hon. Members on both sides of the House about the impact on small farmers. May we please have a debate so that we can consider measures to soften that impact?

Mr. Biffen: Again, I note what my hon. Friend says, and I ask him to accept the broad answer that I gave to the hon. Member for Ceredigion and Pembroke, North (Mr. Howells).

Mr. Jeremy Corbyn: Will the Leader of the House find time next week for a debate on the performance of the Home Office in dealing with immigration and nationality matters and applications for British nationality? It seems that there is a discrepancy between granting Zola Budd's application in next to no time and deporting Afia Begum for no reason other than the fact that her husband tragically died in a fire. Will the right hon. Gentleman make representations to the Home Secretary to ensure that Afia Begum and her daughter are immediately released from Harmondsworth detention centre, are given the same treatment as Zola Budd and are allowed to remain here permanently?

Mr. Biffen: The case of Afia Begum was raised with me by the hon. Member for Leyton (Mr. Cohen). My answer to the hon. Member for Islington, North (Mr Corbyn) is in the same terms as my answer to the hon. Member for Leyton.

Mr. Teddy Taylor: As the exports of highly subsidised food and wine to the Soviet Union have further increased to the staggering level of over 100,000 tonnes a week and are clearly providing a major boost to the Soviet economy, does not my right hon. Friend believe

that we should discuss that enormous expenditure instead of talking about some of the rather nebulous EEC issues that we have to consider late at night?

Mr. Biffen: Yes. I do not want to guide any discussion on the European regional development fund, but it seems to me that the parts of the Community that are covered by that fund involve a great deal of agricultural output.

Mr. Archy Kirkwood: If there is a continuing threat to coal supplies for the steel mill at Ravenscraig and the Leader of the House cannot find time for a debate next week, will he at least give us an assurance that a Minister will come to the Dispatch Box and explain the situation, so that we may have a chance to comment on the dire circumstances that are arising at Ravenscraig?

Mr. Biffen: The hon. Gentleman raises a serious point. All comments should be measured to produce a reasonable outcome to the dispute rather than to exacerbate it, but I will refer his anxieties to my right hon. Friend the Secretary of State for Trade and Industry. Doubtless he will take the hon. Gentleman's comments into account.

Mr. Richard Tracey: Has my right hon. Friend noted the growing number of hon. Members who have signed the early-day motion on tendering by local government? Will he give the House the opportunity of an early debate on that important subject?

Mr. Biffen: I am sure that the number of signatures demonstrates both the importance of the topic and the strong sense of commitment to it on the Conservative Benches. I do not think that I can go further than that today.

Mr. Harry Greenway: Bearing in mind the Government's welcome announcement today of measures to combat glue sniffing and to prosecute those who push glue to would-be sniffers, and following my Bill on this important matter, will my right hon. Friend assure us that the legislation will be introduced at an early date, because there is an epidemic of glue sniffing in this country?

Mr. Biffen: I understand my hon. Friend's anxiety and the importance of the topic. I am not sure that I can be forthcoming about the speed with which the legislation will be brought forward, but I will look at the matter.

Mr. Jerry Hayes: Will my right hon. Friend give the House an early opportunity of discussing the recent Select Committee report on children in care? Many hon. Members in all parts of the House have signed an early-day motion, making it clear that they feel that our child care law is close to a national disgrace.

Mr. Biffen: I shall consider that point and get in touch with my hon. Friend.

BALLOT FOR NOTICES OF MOTION FOR MONDAY 21 MAY

Members successful in the Ballot were:

Mr. Jim Spicer

Mr. Heathcoat-Amory

Mr. Peter Lloyd

Orders of the Day — Finance (No. 2) Bill

(Clauses 10, 17, 18, 20, 21, 27, 57, 98, 105, 113, and Schedules 6 to 8 and 12)

Considered in Committee [Progress 1 May]

[MR. HAROLD WALKER in the Chair.]

Clause 113

ABOLITION OF NATIONAL INSURANCE SURCHARGE

Mr. Terry Davis: I beg to move amendment No. 64, in page 99, leave out lines 16 to 21 and add
'with respect to earnings paid on or after 1st October 1984.'.
The amendment would omit five lines from clause 113, and its purpose is to put local authorities and some other bodies on the same basis as privately owned industry. The national insurance surcharge is to be abolished from 1 October 1984 for privately owned industry, but it will not be abolished until 6 April 1985 for local authorities and some other bodies specified in the Finance Act 1982. The House may consider that the most important of those other bodies are the police authorities.
I do not understand why the Government insist that local authorities and the police authorities should not benefit sooner from this measure, which is widely welcomed on both sides of the House. I look forward to the Minister's explanation.

The Chief Secretary to the Treasury (Mr. Peter Rees): I shall be delighted to reply on the amendment moved with such attractive brevity — by the hon. Member for Birmingham, Hodge Hill (Mr. Davis).
The reason for the Government's opposition is simple. The local authorities have presumably made their plans on the basis of the existence of national insurance surcharge. It would be wrong to give them an unexpected bonus at this stage of the year. Although one is always delighted to do what one can to help, there is no need to ease the authorities' public expenditure plans in such a way. The abolition of NIS is intended primarily to relieve pressure on the private sector, reduce its costs and make it more competitive, particularly with regard to exports. It is with that end in view that we have finally managed to abolish NIS.
I was delighted that the hon. Member for Hodge Hill welcomes the principle underlying the clause. I am sure that, on reflection, he will accept that NIS was a singularly ill-conceived tax which has, in particular imposed a burden upon the private sector that I doubt that it deserved. One might have expected the Labour party to have learnt from the error of the selective employment tax, which was imposed earlier and has been abolished, that such impositions are not the right way to raise revenue. The tax was introduced in singularly inauspicious circumstances.

Mr. Terry Davis: On a point of order, Mr. Walker. The Chief Secretary to the Treasury seems to be engaging in remarks which are more appropriate to a clause stand part debate. I preserved my more general comments for

that debate. I am anxious to know why the right hon. and learned Gentleman is penalising local authorities. If my speech was brief his is invisible.

The Chairman: The hon. Gentleman is on to a fair point.

Mr. Rees: If the Chair is delicately saying that it will allow a clause stand part debate, I shall reserve my general comments for it. I was not aware that the hon. Member for Hodge Hill was sitting in the Chair—perhaps that is one of his ambitions. However, I take your point, Mr. Walker.
This is not merely a case of penalising local authorities. The hon. Gentleman will recognise that they are in slightly different circumstances from the rest of the public sector because the notice issued at the time of the Budget said that there will be an adjustment for cash limits. We felt it right that local authorities should not enjoy the benefit of a relief that they could not possibly have taken into account when settling their public expenditure plans. There is no desire to discriminate against local authorities. There is no case for giving them this unexpected bonus, so we have excluded them.

Mr. Terry Davis: I am disappointed with the Chief Secretary's response. I shall leave aside his personal remarks and my more general comments, which I shall make later if I catch your eye, Mr. Walker.
The point of the amendment is to ask why local authorities and police authorities should be penalised in this way. The Chief Secretary said that they are not being penalised and that he does not understand why they should derive what he described as an unexpected bonus because they prepared their expenditure plans for the current year on the assumption that NIS would apply. The same arguments, could be applied to privately and publicly owned industry. I shall comment on publicly owned industry later. It must be within the knowledge of Treasury Ministers that privately owned industry prepares plans, and budgets for the current year. Such industry is being given what the Chief Secretary described as an unexpected bonus. I shall try to show that it cannot have been that unexpected. Why must local authorities not be given that unexpected bonus? why are they unable to share the benefits that are to be derived only by privately owned industry?
Some local authorities engage in some forms of trading and there are direct labour organisations. Why should they not benefit from the abolition of NIS? Why should the ratepayers not benefit? We sometimes forget the effect of NIS on ratepayers. I am surprised that Treasury Ministers should forget today, of all days, which is polling day in local elections, that ratepayers stand behind local authorities. Why should not they and council tenants benefit from the abolition of NIS?
The Chief Secretary has given us absolutely no reason for rejecting the amendment. Unless he gives us a more convincing argument I shall be forced to the conclusion that this is simply one aspect of the Conservative Government's bias against local democracy and local authorities. In the press recently there has been much comment by spokesmen of local authorities and police authorities about the burden being put on ratepayers as a result of the industrial dispute in the mining industry, because of the use of police in that dispute. Why should not the ratepayers receive this small benefit to meet the cost of policing that dispute? The Chief Secretary has


given us no justification whatever. I remember his words on the subject—they were few. He asked why the Government should ease the public expenditure plans of local authorities. There we have the nub of the Government's prejudice and bias. That is why the Opposition will vote for the amendment.
I was not in the House when the national insurance surcharge was introduced but I took the trouble to read the comments of Conservative Members who were then in Opposition. One Conservative Member, who is now a Minister, comes from the county of Norfolk. He referred to the wicked imposition of the national insurance surcharge being borne by the ratepayers of Norfolk, not once, not twice but on every possible occasion. Why should not the ratepayers of Norfolk now have the benefit of its removal? This amendment will be known as the Norfolk amendment.

4 pm

Mr. D. N. Campbell-Savours: The Minister was given adequate opportunity to reply to my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis), so why did he not tell the House what the cost of our amendment would be? Had he done so, local authorities and the ratepayers would have been able to identify clearly how much the Government have effectively whipped from the coffers of local councils. I ask the Minister to tell us now, because that money rightfully belongs to the ratepayers.

Mr. Peter Rees: I am delighted to tell the hon. Gentleman, in response to his challenge, that the cost would be £85 million. That sum would have to come from the pockets of taxpayers.

Mr. Campbell-Savours: The right hon. and learned Gentleman's reply is interesting. We all know where that £85 million could have gone in local authority budgets. It could have been spent on servicing those in need in the communities, on social services, on helping people whose houses need repairs and on helping every part of local government provision where authorities feel that they have a responsibility to look after those in need.
However, we know that that money is being spent elsewhere. The public should know that later on in today's proceedings we shall be dealing with other amendments that relate to capital transfer tax and the extortionate amount of money that is being allocated, in the form of tax concessions, to the better off, many of whom own more than £100,000 in capital assets. Once again, we are seeing a disgraceful representation of Government financial policy.

Question put, That the amendment be made:—

The Committee divided: Ayes 36, Noes 151.

Division No. 277]
[4.02 pm


AYES


Bell, Stuart
Foster, Derek


Bermingham,Gerald
Gould, Bryan


Blair, Anthony
Hamilton, W. W. (Central Fife)


Campbell-Savours, Dale
Healey, Rt Hon Denis


Cartwright, John
Holland, Stuart (Vauxhall)


Cocks, Rt Hon M. (Bristol S.)
Hollwells, Geraint


Corbyn, Jeremy
Hughes, Dr. Mark (Durham)


Cox, Thomas (Tooting)
Kennedy, Charles


Davies, Rt Hon Denzil (L'lli)
Kirkwood, Archibald


Davis, Terry (B'ham, H'ge H'l)
McDonald, Dr Oonagh


Dobson, Frank
Marek, Dr John


Dormand, Jack
Mikardo, Ian


Fisher, Mark
Mitchell, Austin (G't Grimsby)



Owen, Rt Hon Dr David
Stewart, Rt Hon D. (W Isles)


Penhaligon, David
Wallace, James 


Roberts, Ernest (Hackney N)
Wigley, Dafydd 


Ross, Stephen (Isle of Wight)



Shore, Rt Hon Peter
Tellers for the Ayes:


Skinner, Dennis
Mr. Frank Hayes and


Steel, Rt Hon David
Mr. Harry Cowans.




NOES


Adley, Robert
Jessel, Toby


Ashby, David
Jones, Gwilym (Cardiff N)


Aspinwall, Jack
Jones, Robert (W Herts)


Baker, Nicholas (N Dorset)
Kershaw, Sir Anthony


Baldry, Anthony
Key, Robert


Bellingham, Henry
Kilfedder, James A.


Bennett, Sir Frederic (T'bay)
Lang, Ian


Berry, Sir Anthony
Latham, Michael


Biggs-Davison, Sir John
Lawler, Geoffrey


Boscawen, Hon Robert
Lawrence, Ivan


Bowden, Gerald (Dulwich)
Lennox-Boyd, Hon Mark


Braine, Sir Bernard
Lester, Jim


Bright, Graham
Lewis, Sir Kenneth (Stamf'd)


Brinton, Tim
Lloyd, Peter, (Fareham)


Brown, M. (Brigg &amp; Cl'thpes)
Lord, Michael


Buck, Sir Antony
Macfarlane, Neil


Butterfill, John
MacKay, Andrew (Berkshire)


Carlisle, Kenneth (Lincoln)
Maclean, David John


Chapman, Sydney
Maples, John


Chope, Christopher
Mates, Michael


Clark, Sir W. (Croydon S)
Mather, Carol


Clarke, Rt Hon K. (Rushcliffe)
Maxwell-Hyslop, Robin


Clegg, Sir Walter
Mills, Sir Peter (West Devon)


Cockeram, Eric
Moore, John


Coombs, Simon
Murphy, Christopher


Cope, John
Neubert, Michael


Couchman, James
Nicholls, Patrick


Crouch, David
Onslow, Cranley


Currie, Mrs Edwina
osborn, sir john


Dorrell, Stephen
Ottaway, Richard


Durant, Tony
Page, John (Harrow W)


Eggar, Tim
page, Richard (Herts SW)


Dorrell, Stephen
Ottaway, Richard


Durant, Tony
Page, John Harrow W)


Eggar, Tim
Page, Richard Herts SW


Evennett, David
Peacock, Mrs Elizabeth


Farr, John
Powell, William (Corby)


Finsberg, Sir Geoffrey
Powley, John


Forman, Nigel
Prior, Rt Hon James


Forth, Eric
Pym, Rt Hon Francis


Fox, Marcus
Raffan, Keith


Freeman, Roger
Rathbone, Tim


Galley, Roy
Rees, Rt Hon Peter (Dover)


Garel-Jones, Tristan
Renton, Tim


Goodlad, Alastair
Rhodes James, Robert


Gorst, John
Ridsdale, Sir Julian


Gower, Sir Raymond
Roe, Mrs Marion


Greenway, Harry
Rossi, Sir Hugh


Gregory, Conal
Ryder, Richard


Griffiths, E. (B'y St Edm'ds)
Sackville, Hon Thomas 


Griffiths, Peter (Portsm'th N)
Sainsbury, Hon Timothy


Grist, Ian
Shelton, William (Streatham)


Ground, Patrick
Shepherd, Colin (Hereford)


Gummer, John Selwyn
Sims, Roger


Hamilton, Hon A. (Epsom)
Smith, Tim (Beaconsfield)


Hamilton, Neil Tatton
Soames, Hon Nicholas


Hanley, Jeremy
Spencer, Derek


Hannam, John
Spicer, Jim (W Dorset)


Harris, David
Squire, Robin


Hawkins, Sir Paul (SW N'folk)
Stanbrook, Ivor


Hayes, J.
Stewart, Andrew (Sherwood)


Hayhoe, Barney
Stewart, Ian (N Hertf'dshire)


Hayward, Robert
Stradling Thomas, J.


Heathcoat-Amory, David
Sumberg, David


Hickmet, Richard
Taylor, Teddy (S'end E)


Holt, Richard
Thompson, Donald (Calder V)


Hooson, Tom
Thorne, Neil (llford S)


Howard, Michael
Townsend, Cyril D. (B'heath)


Howarth, Alan (Stratf'd-on-A)
Tracey, Richard


Howell, Rt Hon D. (G'ldford)
Twinn, Dr Ian


Howell, Ralph (N Norfolk)
van Straubenzee, Sir W.


Hubbard-Miles, Peter
Viggers, Peter


Hunt, David (Wirral)
Waddington, David


Hunter, Andrew
Wakeham, Rt Hon John






Walden, George
Wolfson, Mark


Wardle, C. (Bexhill)
Young, Sir George (Acton)


Warren, Kenneth



Wheeler, John
Tellers for the Noes:


Whitfield, John
Mr. Douglas Hogg and


Whitney, Raymond
Mr. John Major.


Wilkinson, John

Question accordingly negatived.

Question proposed, That the clause stand part of the Bill.

Mr. Terry Davis: I am not sure whether the Minister appreciated the brevity of my remarks on the previous amendment but I shall seek to take a little longer in the stand part debate.
As the Minister said, I gave a welcome to the clause. I have some reservation about its underlying principle in view of his antipathy to local authorities in the previous debate. I am not sure whether we can agree on the underlying principle, but the Labour party, and I believe all sides of the House, welcome the abolition of the NIS.
There are several reasons for that welcome. First, the House will be spared the annual ritual of the Opposition urging the reduction or abolition of the NIS and the Government resorting to the typical yah-boo tactics of pointing out that it is a tax that was introduced by a Labour Government, with Labour spokesmen then arguing that there were different economic circumstances at the time of its introduction and the Government spokesmen simply repeating that the tax was introduced by a Labour Government.
The House will also be spared the spectacle of the Opposition putting forward an amendment to reduce, or more recently to abolish, the NIS and the Government replying that that is impossible, only to be followed a year later by the Government doing exactly what the Opposition had urged.
This year is the final stage in that procedure. The Labour party welcomes the benefit that is being given to privately owned industry. The NIS has been rightly described as a tax on exports which does not apply to imports. It has been described as a tax on employment and jobs at a time when unemployment is at almost unprecedented levels. It has been described as a tax on competitiveness which makes it more difficult for industry at home and abroad. For all those reasons we welcome the final step in the saga—the abolition of the NIS.
However, the only beneficiaries from the abolition of the NIS will be privately owned industry. I am not seeking to re-open the short debate on the amendment, but there is another group of people who pay the NIS who will not benefit from its abolition because, as I understand the Government's intention, they will not give the same benefit to publicly owned industry. I hope that when the Minister comes to reply he will explain why the Government are refusing publicly owned industry the same benefit as privately owned industry. After all, on its introduction the NIS affected privately owned and publicly owned industry alike. I should have thought that the Government would see the justice and equity of removing it and giving the benefit of that removal to both industries.
It is nonsense that an industry that has already been privatised by the Government will receive the benefit of the abolition of the NIS whereas if an industry continues to be publicly owned it will not, bearing in mind that the consumers of publicly owned industries would be the

eventual beneficiaries because it would not be necessary for those industries to increase their prices. But the Government have deliberately increased the prices of publicly owned industries, and I suspect that that is behind their restriction of the benefit of the abolition of the NIS to privately owned industry.
4.15 pm
If an industry which was publicly owned has now been privatised, the shareholders, consumers or employees—one of those three—will benefit from the removal of the surcharge. It is a double nonsense that if an industry is to be privatised it will not see the benefit of the abolition of the NIS simply because of timing. I suspect that this is another example of the Minister's prejudices, but I await his reply with interest.

Mr. Campbell-Savours: The debate gives us a little wider latitude to debate broader economic issues in so far as the NIS is a surcharge which certainly had some effect on the cash flow position of companies, and much of our discussion during the Budget debate has been on company funding.
There has been one notable comment during this year's debate. Before I mention that, let me quote from the debate two years ago when the then Chief Secretary to the Treasury announced to the House that he needed the money. Throughout subsequent proceedings in Committee there was repeated reference in our more humorous moments—there were such moments—to that statement. During our debates on the Finance Bill this year the most notable exclamation came from the Financial Secretary to the Treasury the other day when he referred to VAT on fish and chips as being good for the cash flow of industry. He was trying on that occasion—this is a debate about cash flow—to convince the House that chippies up and down the land should welcome the introduction of VAT because it would help them inasmuch as they would be in receipt of what I understand to be a three months' free loan pending the payment of VAT to the Exchequer. Of course, that did not happen.
We must not be churlish. Industry will welcome the abolition of the national insurance surcharge. But let us not forget that for three years the Labour party has repeatedly demanded the withdrawal of the surcharge. Our position is not inconsistent, although a Labour Government introduced the surcharge in 1977. We introduced the surcharge when fewer than 1 million people were unemployed. Different economic conditions then applied. Today real unemployment stands at over 4 million. When we moved our first amendments two years ago unemployment stood at 3 million.
I hope that the Minister will not repeat the misleading statement that he always makes to the House, that, since Labour introduced the surcharge, we are responsible. We introduced it in different economic conditions.

Mr. John Maples: It is interesting to hear the hon. Gentleman's effort to square the circle. He supported the surcharge when it was introduced and now says that that is consistent with supporting its abolition. If the national insurance surcharge is bad when unemployment stands at 3 million why was it good for employment when unemployment stood at only 600,000?

Mr. Campbell-Savours: Then there was more latitude in the economy and the fiscal regime throughout the


United Kingdom was far less disciplined than it is today. There was a substantially higher level of reflation in the economy. We introduced the surcharge as part of our reflationary strategy.
The world and the United Kingdom stand in the middle of a recession. Last year many pundits outside the House and hon. Members from all sides hoped that the Williamsburg summit would to some extent deal with the problem in the western world. Following the summit The Sunday Times said that it demonstrated "collective complacency" in the knowledge that everyone was aware and concerned about the deficit in the United States of America.
I should like to discuss the link between company cash flow and the international recession. I am not one of those hon. Members who believe that pressure should be exerted on the United States to reduce its budget deficit. I believe that that would be highly dangerous. We have heard repeated statements from the Dispatch Box during economic debates and questions to the Chancellor of the Exchequer which show that the Government wish to exert that pressure.
Reducing the American budget deficit would have a devastating effect on the social complexion of the United States. It would create social chaos there. If western Europe wishes to create social chaos here it should demand the closure of that deficit in the United States. We have come to terms with the fact that we have to live with high interest rates in America. Europe must now accord its economic system with what is going on in America.

Mr. Austin Mitchell: Does my hon. Friend agree that the United States has prospered in that it has created 4 million jobs in just over a year by doing exactly the opposite of what the British Government preach? The Americans are ignoring the money supply by running a deficit in good old Keynesian fashion. If the British Government succeed in persuading the American Government to adopt the same narrow, piggy-banking orthodoxy that is used here the same fate that has overtaken us will await the Americans.

Mr. Campbell-Savours: My hon. Friend is correct. The Americans have created jobs in areas which this Government say they treat as priorities—in service trades and industry. An excellent article appeared in The Guardian two or three weeks ago drawing attention to the new job profile in the United States which arises from a willingness to sustain and maintain a high deficit level.
I appeal to the Chancellor not to go overboard in his demands and to accept that by pressing America in that way he will invite social difficulties, not only for the United States, but for parts of western Europe, and even the United Kingdom.
The Association of British Chambers of Commerce say:
The United States' high interest rates are choking the mechanism of recovery throughout the western world.
Is the association aware of the implications of pursuing the strategy that they wish to be pursued?
The Budget judgments of various organisations outside the House are crucial to this debate. My hon. Friends will wish to draw attention to many of the judgments and perhaps quote from them. One particular organisation historically has given support and commitment to the British Conservative party and, certainly, to the Government. I refer to the Institute of Directors. It carried

out a business opinion survey after this year's Budget. It concluded from the findings that the Budget made little difference to the overall position of companies.
After all the expressions of complacency and self-satisfaction by the Government over the last few weeks, a key organisation tells the Government that almost half of its membership believe that they will not benefit from anything that the Government have done in the Budget.
No better example of a sectoral response can be found than that by the paper and board industry. In one of the regular newsletters that it sends to hon. Members the industry says:
The paper and board industry stands to gain £million from this particular area of the budget"—
that is, the abolition of the national insurance surcharge. It counters that £3 million with the high additional cost of rates for industrialists. Rates have been forced up directly as a result of the withdrawal of rate support grant to local authorities. The industry counters that £3 million with the additional costs of energy that it has to pay as a result of Government energy policies in the last three or four years. It also counters the £3 million with the changes in corporation tax which cannot be separated from the capital allowance changes in the Budget because they interact. The net effect of that interaction is that in the coming year more money will be paid in corporation tax by companies. By 1986 the industry maintains that it will be paying almost £1·5 billion more per annum than it pays today. Such organisations know what is happening. The Government have refused to take their voice into account in the formulation of their Budget strategy.
In its recommendations the Association of British Chambers of Commerce says that it wants
a generally more expansionary international economic policy.
It knows, as do industrialists in my constituency, that despite all the Government's palliative measures and the considerable aid given to small businesses in the last four years in 90 or more measures that a reflationary policy is needed to provided jobs and boost demand in the United Kingdom. That is the answer. That is the case that Labour put to the people at the last general election. Because we were sidetracked on peripheral issues which had nothing to do with the central issues in British politics, we did not get the point over. The Bill contains the petty prejudices of the Conservatives towards local government and the public sector of industry. We shall oppose such measures resolutely in the Lobby. At the same time, we welcome the broad thrust of the reduction in national insurance surcharge.

Mr. Archy Kirkwood: I join hon. Members in welcoming the clause. The joy and euphoria which we witnessed on the Tory Benches when the Chancellor annouced the abolition of the national insurance surcharge left me bemused. The tax should have been abolished many years ago.
The Conservatives are celebrating their fifth birthday in office. Throughout those years we have seen record levels of unemployment, high interest rates in the early part of their administration and high levels of exchange rates. The experience of businesses, big and small, during those years has been horrific, exacerbated by this wholly bad tax which the Conservatives have taken five years to get rid of.

Mr. Eric Cockeram: Does the hon. Gentleman recall that, during the Lib-Lab pact, his party supported the then Labour Government in the continuation of this taxation, despite the fact that unemployment was rising? Why did his party support it when it was part of the Lib-Lab pact but has had a conversion since the pact collapsed?

Mr. Kirkwood: The short answer is that I was not here at the time. The hon. Member for Workington (Mr. Campbell-Savours) explained how the circumstances of the time were different; there were only 1 million unemployed and the whole economic background was different. Despite that, I accept the hon. Gentleman's point; we spend too much time in these debates blaming one another for historical excesses.
I do not say that when the Prime Minsiter first went through the door of 10 Downing street in 1979 she should have abolished the national insurance surcharge at a stroke, but it would have given industry and commerce a significant fillip had it been done a couple of years ago. In recent years, industry has been extremely hard-pressed. The CBI, TUC and every other pressure group have been arguing for this change for much longer than a year or two.
I hope that the experience which we have had with the national insurance surcharge will dissuade future Administrations of whatever political complexion from adopting similar measures. There are other, better ways of raising money. Governments must raise revenue, and while payroll taxes are simple to administer, the experience that we have had with this duty should teach us not to repeat it.

Mr. Maples: Will the hon. Gentleman agree that, had the national insurance surcharge been abolished four or five years ago, the benefit would almost certainly have gone in increased wages, whereas, now that the climate is different, it will probably operate on industrial costs, which is what we want to see?

Mr. Kirkwood: Its abolition years ago would have stimulated the economy, increased demand and reduced unemployment. However, that is water under the bridge, and the hon. Gentleman asks a hypothetical question.
I welcome the Government's decision in this matter, even if it has been a long time coming. I hope that the experience that we have had with this form of tax will dissuade future Governments from repeating the exercise and that the short period during which we have suffered the national insurance surcharge will prove a dose of political aversion therapy for future Administrations.

Mr. Austin Mitchell: Why so late? That is the central question that we are all asking about the abolition of the national insurance surcharge. I suppose that the Government are entitled to congratulate themselves over this; they do not have much else about which to congratulate themselves. Congratulations are not really in order, however, because this step should have been taken years ago. This is a totally unjustifiable tax on jobs in a period of rising unemployment, and there has been a rapid rise in the numbers unemployed since the Conservatives came to office.
The Conservatives came to power with promises about regenerating the British economy and rebuilding British industry. We recall the "Labour isn't working" posters and the rest, yet as soon as they took office there began a rapid

rise in unemployment. That rise clearly took the Conservatives by surprise as things got out of control. Sam Brittan forgave them, for they knew not what they did. They did it nevertheless, and we must hold them responsible.
As that rise in unemployment continued, the national insurance surcharge did not just remain the anomaly which it always had been, a tax on jobs, but a grievous anomaly, and it was the economics of bedlam to continue that tax on jobs for so long.

Mr. Gerald Bermingham: Does my hon. Friend agree that in the last three years, when there has been a shift from the industrial to the service sector, the existence of this tax has been a disincentive to the service sector to expand so as to offer employment to young people?

Mr. Mitchell: My hon. Friend is right, and it has been an even bigger disincentive to the manufacturing sector, which has been the most hard hit by various Government measures. Indeed, in considering the loss of 2·5 million jobs in the last four years, one realises that 1·5 million of those have been in manufacturing industry. The much-vaunted service sector, which the Government say will be the answer to our problems, has also lost jobs, partly because of this tax on jobs which the Government are now removing.
There is no point in the Government making the perennial cry that we find in handouts from Central Office; the cry that the Conservatives have been making since 1979, "You put it on, yah-boo," as if that were a justification for having retained the national insurance surcharge for all this time. It was put on in 1976 largely as a result of the situation that existed when the IMF came in. [Interruption.] We were in particular difficulties at that time. Given the mess that the Conservatives have made with the benefit of North sea oil revenues, which should have transformed the whole of the industrial situation, what we did is understandable. The incoming Labour Government had to face the horrendous crisis that was left by the Heath Government. They were faced with the worst economic crisis that Britain had experienced since the war. They did not have the benefit of North sea oil, which the present Government have thrown away.

Sir William Clark: Does the hon. Gentleman agree that the day before yesterday the Government paid back £477 million of overseas borrowings that were made by the Labour Chancellor of the Exchequer, the right hon. Member for Leeds, East (Mr. Healey)?

Mr. Mitchell: Oil wealth is running out of the Government's ears. Their only achievement is to pump oil out of the North sea at a more rapid rate than anything apart from their own insolvency would justify. To congratulate themselves on paying back borrowings is to raise only a very small cheer. If that is the only cheer that the hon. Gentleman has to raise, he will have to raise it more loudly and on many more occasions.

Sir Geoffrey Finsberg: The hon. Gentleman said that the national insurance surcharge was introduced by the Labour Government and that the IMF borrowings were arranged because of the mess that was left by the outgoing Tory Government. Will he reconcile that argument with the statement of the


Labour Chancellor of the Exchequer during the second general election of 1974 that everything was fine and that inflation was declining?

Mr. Mitchell: The outgoing Conservative Government left inflationary pressures in the pipeline. Those pressures and the oil price increase left the incoming Labour Government in 1974 with a horrendous crisis. If the Conservatives' only justification for the mess that has ensued is the Labour Chancellor's statement in August 1974 that inflation was declining, that is a rather pathetic justification for the disaster which the incoming Labour Government were left to tackle. In coping with the crisis the Labour Government of 1976 had two choices. Faced with pressure from the IMF, they could have cut public spending. The alternative was increased taxation. They chose to impose the national insurance surcharge instead of introducing more cuts in public spending, which would have had a depressing effect on the economy.

Mr. Stuart Bell: Does my hon. Friend agree that the Chancellor of the Exchequer of 1974 did not say that inflation was declining? In fact, he said that inflation would be 8·4 per cent. Secondly, the Labour Government of 1974, like other Governments throughout the Western world, and certainly in common with the Governments of Third world countries, borrowed to keep the economy in balance following the fourfold rise in oil prices in 1973. Is it not a fact that the Government are benefiting from the policies into which the 1974 Labour Government entered? They are now able to use North sea oil revenues to pay back the moneys that were borrowed. Surely that is a vindication of the policies of the Labour Government from 1974 to 1976.

The Second Deputy Chairman of Ways and Means (Mr. Paul Dean): Order. I realise that the hon. Member for Great Grimsby (Mr. Mitchell) has been tempted by recent interventions. I remind the Committee that it is supposed to be debating what should happen to the national insurance surcharge, not recent history.

Mr. Mitchell: The debate is somewhat sterile, Mr. Dean. It is a fact that this Government inherited a benefit which no previous British Government had had. North sea oil revenues presented them with the opportunity to invest in British industry and to rebuild an economy that had been in comparative decline for decades. That benefit should have been the solution to our problems, but it has been frittered away to pay for manufactured imports that have destroyed jobs in Britain. Tax revenues have been used internally to finance the unemployment which the balance of payments effect has created.
The national insurance surcharge has been a tax on jobs, and I ask the Committee to recognise that circumstances alter cases. Unemployment rocketed under the Government's policies, and from 1979 there was no justification for retaining the surcharge. I accept that unemployment has been an accidental by-product of the Government's policies, in the sense that they did not expect it. They thought that inflation would be reduced painlessly merely by controlling the money supply. They did not understand — this is a reflection of their economic ignorance—that monetarist economic policies could work in bringing down inflation only by producing a depression of the sort that ensued. Unemployment was 

the inevitable connection between control of the money supply and inflation. However, monetarist policies have been pursued and the result has been under-used resources and economic decline since 1979.
Unemployment has continued to rise, but the Government have argued that the abolition of the NIS would lead to greater borrowing. They should have borrowed far more to stimulate the economy, and the need to do so was recognised by President Reagan, that belated convert to Keynes. Indeed, Reagan is almost a posthumous convert. The newly-elected Reagan Administration was dedicated to Thatcherite policies, to monetarist economics. It quickly discovered — the United States has an open and democratic system—that the howls of pain from industry and the unions were such that a different approach had to be found. The United States political system is sensitive and the Reagan Administration realised that it was necessary to expand the economy by deficit financing. The British Government should have taken the same course. If the Government were not prepared to do that, they should certainly have abolished the national insurance surcharge. Its abolition has been urged constantly by the Labour Opposition.

Dr. John Marek: My hon. Friend said earlier that he thought that the rapid increase in unemployment of three or four years ago was a surprise to the Government. I am inclined not to take such a charitable view. I think that they increased unemployment deliberately. It must have occurred to the Government that the early abolition of the surcharge would have a beneficial effect on unemployment. The fact that they have only recently decided to abolish it is a sign that the Government's policy was deliberately to keep unemployment at a high level.

Mr. Mitchell: There are two explanations, and both are discreditable to the Government. The Prime Minister pleads innocence at the accusation that her Government have increased unemployment. She gets out the glycerine and puts it in her eyes. She says that unemployment is a world phenomenon and is something over which she has no control. The Government's defence is shifting now and they are saying that unemployment is unavoidable during the transition to the new microchip economy.
There are only two explanations for the huge surge in unemployment. One explanation is that it was deliberate. As my hon. Friend for Livingston (Mr. Cook) has said so graphically, unemployment for the Government was the answer and not the problem. Perhaps they considered it to be a means of disciplining the unions and making working people so scared about losing their jobs that they would not ask for wage increases. Alternatively, the Government did not realise that the inevitable consequence of their policies was unemployment. We can accept the Machiavellian explanation, or the naive explanation, but neither leaves the Government with much credit. Being a charitable person, I blame the Government for naivety, stupidity and incompetence. My hon. Friend the Member for Wrexham (Dr. Marek) is welcome to place a more sinister interpretation on the facts that are before us.
The fact remains that unemployment was out of control and was still rising. However, the Government chose to retain the national insurance surcharge, notwithstanding the constant pleading of the Labour Opposition to abolish it. That pleading was echoed by the CBI on the rare


occasions when it managed to get up off its knees. The sore-kneed CBI was bold enough to ask, first, for a reduction, and then for the abolition of the surcharge. We are now discussing its proposed abolition; we are here to bury it, not to praise it. It is important to emphasise the consequences that its retention has had. It has been a direct burden on the costs of manufacturing industry, which is crucial to jobs and Britain's survival in a competitive world market.
The Government say that the key to survival is to bring down our costs, and they are undoubtedly correct in that analysis. Their mistake is to offer us techniques that will not bring down costs, but will increase them. The Government offer the techniques of monetarism, deflation, call it what one will. Those techniques aim to reduce costs by using the pressure of unemployment and high interest rates. I do not know how high interest rates can reduce costs. Interest rates are at historically high levels. Given the low rate of inflation, it is criminal that the Government have not reduced them.
One would have thought that the central part of policy of any Government sensitive to the desire for home ownership, and a desire to stimulate the economy and produce investment, would be to bring down high interest rates, but they have not done so. Why have the Government not reduced interest rates ? They have not done so because they regard them as a discipline and a pressure on costs.
The only way to reduce costs—the Government have avoided this measure and regard it as economically reprehensible—is to expand. There is no better way of bringing down unit costs than by increasing 'production; nor is there a better way of improving productivity. That is a simple correlation. The OECD's main economic indicators show that in the past year our unit costs have risen, despite the self-congratulation of the Government on bringing inflation down from the heights to which they increased it. Our unit costs are still increasing, while in the past year unit costs in America, Germany and Japan have come down substantially because they increased output more. The national insurance surcharge has imposed an extra burden on costs which should have been removed years ago from our competitive economy.
This measure has been left too late and has been undertaken too slowly. The Government must go further, because they have left this measure too late. It is not sufficient to give compensation and provide the boost needed by manufacturing industry. We are in the position of the man in the old Yorkshire joke. His friend comes round asking for Tom. His wife comes to the door in tears and says, "I'm sorry to have to tell thee, but Tom is deed. Come in and look at him." They go upstairs to see Tom lying in bed. His friend says, "Well, he looks well, dun't ee". His wife says, "So he should, we've just come back from Bridlington." The Government say to British industry as it expires, "You are looking good. We have just taken off the national insurance surcharge."

Mr. Bell: I am always delighted to follow my hon. Friend the Member for Great Grimsby (Mr. Mitchell) in his analysis of the economic position in relation to the abolition of the national insurance surcharge. I am sure that the Committee enjoys not only the way he makes his speeches but the humour with which he laces them.
We are discussing a matter on which, I believe, the House is unanimous. All hon. Members welcome the abolition of the national insurance surcharge. The surcharge payable under the National Insurance Surcharge Act 1976 is now being abolished. We have heard a great deal on the matter since the surcharge was imposed as part of a £2,000 million package, designed to raise revenue for the Exchequer. It was a tax that was going not into the national insurance part of the Budget but into the Treasury side of finance. The insurance surcharge was a new tax. The existing 1 per cent. surcharge is to be abolished from 1 October 1984, except in the case of local authorities, police authorities, the Scottish fire authorities, magistrates courts committees and probation and after-care committees, for which the effective date of abolition of the tax is 6 April 1985.
None of that news is welcome to the people of Teesside, whom I represent. The local authority discussed the matter. The budget of the police authorities in Cleveland for the present year has been reduced by £1 million. They would have benefited if the national insurance surcharge had been removed now, but they must wait until 6 April 1985. The port of Cleveland includes a great complex of industrial chemical materials. ICI and Monsanto Chemicals are sited in Cleveland, and chemicals are shipped up and down river. Cleveland needs a high budget for its fire authority. That authority would have benefited had the national insurance surcharge been abolished at the same time as it was abolished for the private sector. Cleveland's social services, magistrates courts, probation and after-care committees would have benefited also from the abolition of the surcharge now. This is a matter of priorities. The Government do not have the same priority for social service, fire and police authorities as they have for the private sector.
I should like to lay one matter to rest once and for all, because this is probably the last time we shall be discussing the national insurance surcharge. When the legislation was placed on the statute book, the tax was designed to raise money. The entire thrust of the Budget is in the interests of the City of London. It is difficult to accept the criticism of Conservative Members about a tax on jobs and a money-raising exercise when the aim of the Budget is to release money into the City of London to improve its competitiveness. The Budget is not in the interests of job creation, as we understand that term.
The expected yield of the national insurance surcharge was £910 million in 1977–78 and about £1,000 million in a full year. From the time the tax was imposed, a great fuss was made about it by the Conservative party, which sought to wring as much political capital from the tax as it could. Conservative Members are still seeking to wring all the political capital that can be extracted from the surcharge, even in its death throes and when it is about to be abolished. When the scheme was introduced, Conservative Members called it the job destruction scheme. They did not consider the £500 million we were spending on job creation schemes at the same time. None of the forecasts which have been resurrected by the Conservatives ever came to pass.
Conservative Members were worried that employers would react in a variety of ways. The criticism was that employers would raise prices to make good the addition to their costs, absorb the additional costs, at the expense of profits, and reduce the size of their labour force. The fact is that, in 1979, when Labour left office, inflation was


down to 8 per cent. and more people were in work than ever before. I shall make an aside that might not appeal to Conservative Members—more trade unionists were in work in 1979 than at present. Fewer companies were going broke than now.
Since the Budget statement, the Opposition have consistently referred to the fact that last year more bankruptcies occurred among small firms than ever before. Companies in 1979 achieved higher profits than they do at present under the Conservatives. Since 1979, there has been uncertainty and insecurity. Many businesses have had to consider whether they can remain viable. The criticisms made by the Conservatives in 1979, which have continued to this day, have never been justified. I say that on a factual basis.

Mr. Bermingham: I have listened carefully to my hon. Friend. Does he agree that it is ironic that it takes between six and 12 months to remove a tax, which everyone says it is desirable to abolish and two or three months to impose a tax on, for example, building alterations, which everyone says is counter-productive?

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Mr. Bell: I am grateful to my hon. Friend for drawing attention to yet another of the anomalies in the Budget. The great euphoria with which Government Back Benchers welcomed the Budget has already been punctured in a number of ways. My hon. Friend and I will continue to expose its weaknesses.
The abolition of the national insurance surcharge is confined to the private sector. Yet again, the Government are subtly discriminating against the public sector. Does not the Chief Secretary realise that the steel and coal industries, which suffer heavily from interest charges on money that they have borrowed, need some assistance? Both industries are attempting to be competitive, and both should be helped. The entire thrust of the Government's argument is in favour of competitiveness and exports. The steel and coal industries both export goods, yet they are to be penalised because the Government will not extend to them the abolition of the national insurance surcharge.
We have heard yet again today, and will no doubt hear again in future, about the Government's concept of rolling back the frontiers of the state. Those frontiers might be rolled back for private firms, but they are certainly not being rolled back for public firms. About 7,500 able-bodied men on Teesside work in the steel industry. They have fought hard to make it competitive, while seeing their labour force reduced from 25,000 under the Conservative Government. They want to compete with European countries, Japan and South Korea—yet they will not benefit now from the abolition of the surcharge. Therefore, it is right to draw the attention of the wider public to the facts.
We had hoped that the great battle about the nationalisation of the steel and coal industries had long since been buried. But those battles are not over and we now know that the industries will continue to be penalised. Nothing will be done to ease their burdens—they will not even have the benefit of the abolition of the surcharge.
In the Chief Secretary's speech during the Budget debate, he said:
I now come to the broad sweep of the Budget. It has two themes. It re-emphasises our determination to continue the fight

against inflation through sound financial policies, and it introduces a radical programme of tax reforms."— [Official Report, 14 March 1984; Vol. 56, c. 420.]
The fact that the abolition of the surcharge will not benefit local authorities, police authorities, Scottish fire authorities, nationalised industries, magistrates courts and probation and after-care committees belies his statement.
In response to my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) earlier today, the Chief Secretary said that he hoped one consequence of the abolition of the surcharge would be a greater volume of exports. It is rather like the feeding of the 5,000—there are so many different mouths to feed that no one knows which will be fed.
Teesside has a large number of small businesses, and would welcome the abolition of the surcharge, provided that the £350 million that is to be given back to private industry in 1984–85 and the £850 million that will be given back in a full year is used for job creation. Our fear is that the money will go into profits, dividends and portfolio investment abroad—not into job creation. The coming year will be a great test of the Government's theory that there will be an upsurge in jobs throughout the country.
The Government constantly urge competitiveness. In a recent speech the Chancellor said:
Inflation destroyed our competitiveness, our profits, our investment, and undermined incentives and industrial relations. The reduction of inflation to its present low levels and its further reduction, are the preconditions for creating new jobs.
As we know, the contrary is true. The reduction of inflation to 4 per cent. or 5 per cent. has been at the cost of jobs. We as a nation and the Conservative Government have been prepared to put 2 million additional souls on the dole. No other country in the western industrialised world has sought to balance the rate of inflation with unemployment. This is the only Government that have destroyed employment prospects to bring down inflation.
We hope that the abolition of the surcharge will lead to the creation of more jobs. We hope that it will bring more employment to Cleveland, where 18 per cent. of the male work force is unemployed. We hope that it will help firms such as Davy Modules in my constituency, which has set up a new plant. We hope that there will be better prospects than those held out by the CBI yesterday in its report about business reaction to the Budget and our future prospects. We are about to expand from a narrow base and the prospects for business reflected by the CBI extend for no more than six months.
The abolition of the surcharge—which we welcome —is part and parcel of the shifting of our economy from the so-called manufacturing sector to the service sector. While we accept that, we do not believe that it will have the consequences that the Government have suggested.

Mr. John Farr: To hear the miserable succession of Opposition speakers, one would not have thought that the Government were making a substantial change in direct taxation by removing the national insurance surcharge. Opposition Members have said that they welcome the abolition of the surcharge, but that it is long overdue, that, anyhow, it is unnecessary in their constituencies, and that, in any event, it was not the fault of the Labour Government that it was first imposed.
My constituents view the abolition of the surcharge as a great opportunity and a milestone. Employers and employees alike believe that there are great opportunities for those engaged in business enterprise and small


companies. The surcharge is far more than a tax on jobs — it is a tax on incentives and on exports. The surcharge is one reason why our export performance has been so dismal, why our industrial capacity has been declining and why our industrial performance was so poor until 1979–80. The Government are now abolishing that surcharge.
The Budget is excellent, and it contains a large number of good points. One could debate for many hours which is the more significant improvement in the economy that has been introduced by my right hon. Friend the Chancellor. I believe that, over the next few years, the abolition of the surcharge will prove to be one of the most significant improvements ever to take place in our economic management.
What appals me from what I have heard so far in the Opposition speeches is that a Socialist Government imposed the surcharge, and that Labour Members will vote against its abolition. I understand that the Opposition will vote against the Finance Bill throughout the day. I should say if I were not such an experienced politician that what revolts me about politics is how insincere people can be in criticising the Government, who in this case are sweeping away the surcharge originally imposed by a Socialist Government. How can the Opposition be so double-faced as to complain that the Government are not doing enough—

Mr. Bermingham: Will the hon. Gentleman give way?

Mr. Farr: No.
In the words of an Opposition Member, the surcharge should be abolished also in relation to the nationalised industries, the Government should make more such changes, and their response is insignificant. Another Opposition Member even had the arrogance to say that the abolition should have taken place years ago. But the Socialists took no steps before 1979 to reduce or limit the impact of NIS upon jobs, enterprise and exports.
It is interesting to consider, had my right hon. Friend not introduced clause 113 and relieved the great load on the backs of so many working people, what alternatives he could have introduced in the Budget costing roughly the same to the Exchequer as the abolition of NIS.

Mr. Bermingham: With great respect to the hon. Gentleman, he has missed the point. Everybody welcomes the abolition of NIS. The question that I must ask the hon. Gentleman is: if its removal is beneficial should it not have been removed forthwith in 1979?

Mr. Farr: That could not have been done. When the Conservatives returned to office in 1979 there were many major financial problems of pressing importance to be solved after years of Socialist Government. Clearly, a sense of priority was necessary. I believe that the priorities have been achieved in the right way.

Sir Raymond Gower: Are not the Opposition very attached to penal taxes that are damaging to industry? My hon. Friend will recall that the Labour Government introduced the selective employment tax that was so injurious.

Mr. Farr: I thank my hon. Friend. He has an excellent and long memory. He knows as well as I do that a

Socialist, whether in or out of government, is never happier than when he or she is thinking up a new tax and imposing it upon the wretched taxpayer.
In relation to national insurance surcharge, my right hon. Friend must have turned the matter over carefully in his mind. I know that its abolition has been at the top of the Government's list since 1979, but there must be a sense of priorities in these matters. Let us suppose that clause 113 had not been introduced, and that the surcharge had remained in existence for another year. What alternative improvements could my right hon. Friend have made? He has greatly increased personal allowances over the whole range, well above the rise in prices and the cost of living. I do not believe that Opposition Members, who are arguing so strenuously against clause 113, would have said that personal allowances should have been increased more than they were.

Mr. Bell: We are not arguing against clause 113.

Mr. Farr: What other methods of fund raising has the Chancellor under examination? If he had left intact the national insurance surcharge, could he have done something about, say, the massive increase in the cost of road fund licences, perhaps by reducing the imbalance of payments and expenditure? Again, I have no doubt that the Chancellor has considered that approach, as representations have been made to him by motoring organisations and local authorities.
Perhaps my right hon. Friend could have changed his policy in relation to Customs and Excise duty and not increased duty on beer and tobacco, or even decreased it, but retained NIS. I have no doubt that the Chancellor considered such alternatives and many others. His decision to abolish NIS at long last, and to do away with what I call a stain on the enterprise and initiative of British workpeople, which was imposed by the Labour Government some years ago, is not a day overdue. If the Socialists are determined to vote against clause 113, I shall certainly support my hon. Friend in the Lobby tonight.

Mr. Mark Fisher: I am sure that the House has enjoyed the contribution of the hon. Member for Harborough (Mr. Farr). Indeed, Opposition Members were enrapt over his reasons and attempted explanation of the fact that this all-action, dynamic Conservative Government have taken five Budgets to do what the hon. Gentleman so studiously and earnestly recommends. His contribution to the debate was most interesting.
I should make clear the point that seems to have escaped the hon. Member for Harborough. Opposition Members welcome the abolition of the NIS. If I say that slowly enough, perhaps the hon. Gentleman will understand and recognise the Opposition's view. Indeed, we shall support the clause.

Dr. Marek: I notice the hon. Member for Harborough (Mr. Farr) shaking his head. It would be better if my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher) said two or three times, to get the message across, that we all welcome the abolition of NIS. Has that message got across to the hon. Gentleman?

Mr. Fisher: I am grateful for my hon. Friend's assistance. I see now that the hon. Gentleman has got the gist of our argument. The point has been made.
All would have been well in the debate if the Government, through the Chief Secretary or the Chancellor, had modestly brought the change to the House, saying, "Here is a change that we recommend." The Government know very well that the Opposition support the measure. If they had done that we should have been able to proceed with the Bill more quickly. Unfortunately, although the Chief Secretary is a modest fellow and would have left the matter to the House—the Opposition would have supported him—the Chancellor is not so modest. He is a more ebullient and complacent character. He made grandiose claims for this tax change, and it is those claims that we dispute.
The Chancellor of the Exchequer had the cheek to claim that the abolition of the national insurance surcharge would help to provide employment. In his Budget statement he went to great lengths to make that point. That really is a cheek from a member of a Government under whom unemployment has risen from less than 1 million to more than 3 million. Every constituency bears the scars of the steps that the Government have taken to increase unemployment. In the past few years, summer school leavers in my constituency and in those of most hon. Members have had little chance of finding jobs.
It is impertinent of the Government to say now that they are doing something to help employment. It is rather like Sweeney Todd surveying the blood and the wounds of lost job opportunities and saying that he is going into the Elastoplast or Band-Aid business. That is the scale of it, and it is an impertinence.

Mr. Maples: While we are on the implied subject of hypocrisy, does the hon. Gentleman agree that under the previous Labour Government unemployment doubled, and that it increased under every Labour Government?

Mr. Fisher: Every hon. Member and every member of the public would love to return to the levels of unemployment under the previous Labour Government. If this Government could reduce unemployment to below 1 million again, I am sure that even Labour Members would congratulate them.

Mr. Bell: For the record, is not it true that between 1945 and 1951 unemployment fell under a Labour Government?

Mr. Fisher: I think that we are talking about history when we should, perhaps, be discussing the Finance (No. 2) Bill 1984. The Chancellor of the Exchequer claims that abolition will help employment, but how many jobs will it create, and when will they be created? To find out the Government's view, we should look at the "Financial Statement and Budget Report", but, strangely, there is no forecast there of a decline in unemployment. Perhaps, then, we should turn to the public expenditure White Paper, but this year the White Paper says that in 1984 there will be no fall in the unemployment rate. As we know, in the first few months of this year the underlying trend of unemployment has regrettably been inexorably upwards.
Will the Chief Secretary make good that omission from the Budget statement and tell the Committee when the benefits of removing the national insurance surcharge will be reflected in a reduction in the number of unemployed? I refer him to the evidence which the Treasury and Civil Service Committee heard from Lionel Murray, the general secretary of the TUC. Very pertinently, in evidence to the Select Committee, he said:

The fact is that previous reductions in the national insurance surcharge have not increased employment and indeed I see that the chairman of GKN, for example, said this very clearly in his statement last week.
So, unless the Chief Secretary has something to tell us, there is no evidence that this measure will have much effect on employment or unemployment. In a full year it will release £865 million, but it is difficult to see how that money will affect employment.

Sir Raymond Gower: If the hon. Gentleman is so convinced that abolition will not confer any benefits and will not reduce unemployment, why are he and his colleagues so insistent that they support it? If it is not to confer any benefits, why do they intend to support something that will cost a good deal? According to the hon. Gentleman, abolition will be quite ineffective.

Mr. Fisher: I am grateful to the hon. Gentleman for bringing me to my next point. Abolition will undoubtedly be effective, and in the private sector it should lead to higher profits. I should put it on record that Opposition Members are definitely in favour of higher profits, despite what Conservative Members so often say. We certainly support higher profits in industry, and abolition of the national insurance surcharge will lead to that.
However, what will happen to those profits? If, as I suspect, private industry becomes marginally more profitable as a result of abolition, will that be reflected in lower prices? I should be interested to hear the Chief Secretary's opinion. Can he name an industry or company which he believes will lower its prices as a result? I shall leave that question with him.
Will higher profits be reflected in higher wages? That is quite possible and would be greatly welcomed in many instances. Will higher profits be reflected in more investment? If so, we would 'welcome that. However, we are constantly told by the Chief Secretary that we should take the Budget as a whole, and it is interesting to note that many other measures, such as the withdrawal of first-year capital allowances, penalise capital investment in industry. So it is a strange double-take by the Government.
I very much fear that for a great many companies those higher profits will not be reflected in prices, wages, investment, design or research and development, and that much of that £865 million will go on higher dividends. Those dividends will certainly benefit one or two people involved in those private companies, but an increase in the dividend take will not address the problem of creating employment, contrary to the Chancellor's grandiose claims.

Sir William Clark: I am sure that the hon. Gentleman will be fair. As he knows, much of the return on capital is dividends out of retained profits. The rate of return on investment in equities—which includes manufacturing industry, and industry generally — is extremely low. Therefore, does the hon. Gentleman not agree that it is no good calling for more investment unless a better return is given on those investments? In the past, under successive Governments, the rate of return on gilt-edged shares has been much higher than on equities. That is the imbalance that must be changed.

Mr. Fisher: If only Conservative Members were as well-intentioned, good-hearted and innocent about the world as the hon. Gentleman. Sadly, people do not respond to profits like that. If the hon. Gentleman's thesis


is correct, there should suddenly be an enormous increase in capital investment in Britain, particularly in manufacturing industry, when dividends are high. However, when dividends were high in the early 1970s that money went abroad and into property. Property values rocketed when dividends were extremely high in 1971, 1972 and 1973. Such is the cynicism of private equity holders in this country that there is no sign that when dividends are high they rush to pump that money into manufacturing industry. That is why our manufacturing industry is so under-capitalised. That money has gone abroad and into speculative ventures, such as property, and not into the industrial infrastructure, despite the desperate need.
I wish that private investors were as well-intentioned and good-hearted as the hon. Gentleman, and I mean that sincerely. However, the facts are against him. When dividends are high, they are not translated into investment in manufacturing industry. The truth is that, other than verbally, the Government do not care about employment. Ministers make protestations on television, but their actions are antagonistic to employment and amount virtually to an attack on it.
The Prime Minister makes a great point of telling us that we must get our competitiveness and productivity right. Productivity and competitiveness have improved on paper, but many people suspect that one reason why unit costs have come down and competitiveness has improved is that many companies have gone bankrupt. If the number of batsmen is reduced at the beginning of the cricketing season, the average increases because the number of runs scored is divided between fewer batsmen. Similarly, by reducing the work force, productivity appears to increase. However, real productivity and competitiveness have not changed much.
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During the past four years the Government have made a concerted attack in the name of productivity and competitiveness on labour-intensive industries. With the withdrawal of capital allowances the Government are now attacking capital-intensive industries and showing themselves to be inconsistent, dangerous and daft. The Government should care about employment and jobs, for the important social reason that government is about people, and one of the most dignified things for a human being is the right to earn a living, support a family and contribute to the well-being of society. That is a simple, basic human aspiration, and it will be true for as long as we have the puritan work ethic. The Government must recognise that. That is the important social reason for employment. The economic reason for employment is that it increases the tax revenue and its base, and increases consumer demand.
Both points seem to have escaped the Government's previous two Chancellors, and they appear to be in danger of escaping the present Chancellor. Even he would agree with the rough equation that the level of employment depends on the output demanded and on the mix of capital and labour that is necessary to produce that output and satisfy the demand. Even Conservative Members will agree that that is a basic truism.
One way to bring that about is to boost demand—to reflate demand in the economy, as so eloquently outlined

by my hon. Friend the Member for Great Grimsby (Mr. Mitchell). The Government, however, have depressed demand. They should boost output, but they have depressed it.
Despite the abolition of the national insurance surcharge, which comes too late, like the cavalry coming over the hill when the battle is over, the Government have concentrated almost exclusively on the capital and labour mix, and got it wrong. Now they have even changed their mind about that. During the first four years the Government's medium-term financial strategy was to control inflation and reduce interest rates, to create the climate for investment. In this year's Budget the Chancellor decided that there was too much investment and that we needed to concentrate on labour. This year's tax measures relate to labour. The Chancellor presented the abolition of the national insurance surcharge as a way of tackling labour costs rather than capital costs. Although the medium-term financial strategy is nominally intact, we see a complete volte face. I should be grateful for the Chief Secretary's views about that, because the Government appear to have changed tack.
Despite the measure the Government are attacking labour, and with the measure they are attacking capital. With that change of emphasis, the Government have hoisted a flag to show that they are lost. Unfortunately, when they are lost, the economy and the country are likely to be becalmed and in a fog of misapprehension and misunderstanding. Despite the measure, which we welcome, the Government will damage the economy, the people, and the country.

Sir Raymond Gower: I start by emphasising that the hon. Member for Stoke-on-Trent, Central (Mr. Fisher), supported by his hon. Friend the Member for Wrexham (Dr. Marek), said that the Labour party was in favour of the measure. However, he expressed great doubts about it because the Government—especially the Chancellor—cannot prescribe with certainty — [Interruption.] A combination of many factors has caused difficulties for many of our industries. In my experience, large industrialists and those who must supervise the difficult problems of running small firms, are of the opinion that this is a severe handicap to industrialists and all those who seek to provide employment.
The hon. Member for Stoke-on-Trent, Central ranged widely over the financial spectrum. I agree with my hon. Friend the Member for Harborough (Mr. Farr) that this relatively narrow matter is a cumulative achievement. It is part of the process commenced by my right hon. and learned Friend the previous Chancellor and has been carried on while there have not been available great sums of money for easy disbursement. Times have been difficult. The hon. Gentleman gave the impression that we have no desire to reduce unemployment. That is a statement often made by Opposition Members. I am anxious, as are all my right hon. and hon. Friends, to reduce unemployment substantially as soon as possible. I hope that the hon. Gentleman accepts that.

Mr. Fisher: I accept the hon. Gentleman's sincerity. I wish that he would put greater pressure on his Government to implement policies that would do that. The sincerity of Tory Back-Bench Members is not in doubt, but the actions of the Government are not conducive to reducing unemployment. They show categorically that the


Government have deliberately followed policies, the necessary price for which — so they believe — is a reduction in employment. We believe that they are wrong.

Sir Raymond Gower: I wish it were even half as easy as the hon. Gentleman implies. If it were, France, under its Socialist Government, would not be facing problems such as having to shed 20,000 jobs in the steel industry alone. Throughout the world Governments of different political outlooks are facing great difficulties. Those who manage our industries now have been facing different circumstances from those in the early 1970s.

Mr. Bermingham: Does the hon. Gentleman agree that the American economy, which has taken the opposite policy to ours, has an expanding steel industry and is taking on more employees?

Sir Raymond Gower: We cannot possibly compare the American economy with ours. America can subsist without exporting. It could be completely independent. It is a continent, and has all the necessary raw materials. We cannot compare it with a small island which must export two thirds of its output to exist. To do so is a perversion of my argument.
All countries that are comparable with Britain face great problems, and we must consider this valuable change in that context. I do not suggest that the change will make our job easy, but had the surcharge not been first reduced and then abolished, how many more jobs might have been lost? Labour Members have welcomed the change with many reservations, but I welcome it because I believe that the surcharge was a severe handicap to industry. It is significant that a Labour Government imposed this obnoxious tax, and proposed previously another obnoxious tax — the selective employment tax. They contributed to unemployment and left a nasty heritage for the Governments who followed them. In 1970 the Conservative Government had to get rid of the selective employment tax, and now we have had to get rid of the national insurance surcharge, with great difficulty.

Mr. Fisher: I do not wish to divert the Committee too much, but I should point out that when those two taxes were introduced, economic circumstances were different, with high profits in companies and great difficulty in tackling tax lawyers, who advised companies so skilfully that the reveue from corporation tax was always low. Many companies contributed to our tax revenue only through selective employment tax and national insurance surcharge. Had the tax lawyers — there are several eminent tax lawyers in the Government ranks—not been so successful in advising companies, selective employment tax and national insurance surcharge would probably not have been necessary.

Sir Raymond Gower: The hon. Gentleman said that it was strange that the Government now appeared to be dealing with the needs of employment whereas previously we were more concerned about capital investment. However, it was our experience that in some cases the former allowances meant vast payments that produced few jobs. The hon. Gentleman should be pleased that the emphasis is now on labour, not on capital. However, again he welcomed it, with many reservations.
We still face formidable problems, for which we cannot seek easy solutions. Our difficulties are equalled and

sometimes surpassed in other countries. This is just one useful step that could lead to an improvement in the employing capacity of industry, which we all desire.

Mr. Bell: I am most grateful for the opportunity to address the Committee again, because I wish to reply to some of the points made by the hon. Member for Vale of Glamorgan (Sir R. Gower), who has enlivened our proceedings. My hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher) did not doubt the sincerity of the hon. Gentleman or of other Conservative Members in wishing to reduce unemployment. No one would doubt the sincerity of Marshall Haig and Marshall Joffre in the first world war, who sent millions of men to their deaths because they believed that that was the way to win the war. No one doubts that the belief of Conservative Members, which has run like a thread throughout Conservative policy since the early 1900s, is to create reservoirs of unemployment so as to create the right economic conditions for capital.
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However, Conservative Members seem to wish to forget the increase in unemployment since 1979 and the fact that the Chancellor has built into the economic equation 3·1 million people officially unemployed. They do not draw attention to that fact in every speech made from the Dispatch Box or elsewhere. There is a great wringing of hands about unemployment, but I repeat that the abolition of the national insurance surcharge is not necessarily aimed at the creation of jobs. It may be aimed at adding to the profits of companies. The Chancellor said that it is aimed at the creation of jobs, and the Chief Secretary said that it is aimed at exports, but the fact is that the abolition of the tax is akin to feeding the 5,000— [interrution.] If the Hon. Member for Croydon, South (Sir W. Clark) wishes me to speak for the next three hours, I should be happy to do so and I hope that he will sit there and listen to me. I have tried to put my arguments in a friendly fashion, accepting the sincerity of Conservative Members. If they wish me to adopt a different tone, we shall go through all the points that we can and continue the debate for many hours.
The abolition of the national insurance surcharge, which the Opposition welcome, might increase investment overseas or increase profits, but it will not create employment. I said earlier that on Teesside we expect some job creation in the area
One reason why I intervened a second time was because of the remarks of the hon. Member for Harborough (Mr. Farr). It is a pity that the hon. Gentleman will not be a member of the Standing Committee on the Bill, because we should have welcomed a continuation of the remarks that he made today. He began by saying that he had heard a series of miserable speakers. I hope that he meant a series of what he might describe as miserable speeches, and that he was not suggesting that Opposition Members are miserable people.
The hon. Gentleman tried to advance the myth, which the Conservative party has supported since national insurance surcharge was introduced in July 1976, that it creates unemployment. However, in 1976, Select Committees of the House estimated that only 10,000 jobs would be lost as a result of the surcharge. The tax was so successful that in 1978 it was increased by my right hon. Friend the Member for Leeds, East (Mr. Healey) to 3·5 per cent., and its cash yield was £1,030 million.
The hon. Member for Vale of Glamorgan asked why the Labour Government had introduced selective employment tax. The emphasis of the Labour Government was on manufacturing production, goods for export and wealth creation through manufacturing. We tried to move people away from the service industries into manufacturing. That was the basis of selective employment tax but, as my hon. Friend the Member for Stoke-on-Trent, Central said, we were somewhat defeated in our purpose by skilful tax accountants, who reduced the revenue from the tax and encouraged investment in the service sector as opposed to the manufacturing sector.
We welcome the abolition of the surcharge, but we regret that it has not gone wide enough. I hope that the Chief Secretary will tell us why local authorities, police authorities, Scottish fire authorities, magistrates courts, probation and after-care committees, and the public sector have been excluded. Why does the private sector need such a boost, when nationalised industries such as coal and steel, which sell products abroad in a highly competitive market, do not?
We hope that the Chief Secretary will give us the answers to the questions that we have put and that we continue to put. We welcomed the reduction by 1 per cent. of the national insurance charge by the Foreign Secretary when he was Chancellor of the Exchequer. We regretted then that he did not have the courage of the present Chancellor to abolish it altogether. In a difficult economic climate, he might have helped more people to stay in work when the dole queues were lengthening and he might have helped to sustain more businesses that were going bankrupt.
We welcome the abolition of the national insurance surcharge also because that was one of the manifesto commitments of the Labour party. We welcome at every opportunity the Conservative party carrying our Labour party manifesto commitments. We urge the Conservative Government to do this time after time in the months and years ahead.

Mr. Peter Rees: I suppose it is worth reflecting occasionally on how our debates strike the unprejudiced observer outside the House, whether he is listening to the radio or reading Hansard. I dare assert that this debate must strike unprejudiced observers as having drifted at times far from reality. I hope hon. Members will allow me to remind them that we are debating the question that clause 113 should stand part of the Bill.

Mr. Austin Mitchell: That is an attack on the Chair.

Mr. Rees: The Chair is well able to look after itself without the intervention of the hon. Member for Great Grimsby (Mr. Mitchell) from a sedentary position; his command of the rules of relevance and order struck me as being tenuous in the extreme.
Every hon. Member who has spoken from the Opposition Benches has prefaced his remarks by welcoming the abolition of the national insurance surcharge. Then with a sigh of relief they have changed gear and have gone on to qualify their welcome with a mass of irrelevancy and inaccuracy. Perhaps the best service that I can do the Committee is to set out as briefly and succinctly as I can some of the basic facts. It is worth reminding the Committee, as some of my hon. Friends

have done, particularly my hon. Friend the Member for Vale of Glamorgan (Sir R. Gower) and my hon. Friend the Member for Harborough (Mr. Farr) that this tax was introduced by a Labour Government who appeared to have learnt nothing from the inadequacies of selective employment tax. When they introduced the national insurance surcharge, unemployment stood at over 1 million. I know the hon. Member for Workington (Mr. Campbell-Savours) will allow me to correct his inaccuracy; he said unemployment was below 1 million, but it was not. The figure was 1,313,000. The surcharge was introduced at 2 per cent. Two years later in 1978—and I give them this—unemployment had dropped by 14,000.

Mr. Campbell-Savours: If the right hon. and learned Gentleman refers to the Official Report tomorrow he will see that I did not make any reference to election year but to 1977. I think he will find that I am right.

Mr. Rees: I never referred to election year. I referred to the year it was introduced. The figures for 1977 are the figures that I have just given to the House. Perhaps the hon. Gentleman will do me the courtesy of reading my speech and comparing it with his. If he finds that he was in error I have no doubt that, with his habitual courtesy and regard for the truth, he will make an ample and honourable apology to me on a suitable occasion, perhaps upstairs in Committee Room 10.
In 1978—and I give this to Opposition Members—unemployment had fallen by 14,000, so it was still 1,299,000. Encouraged by that, and no doubt encouraged by their new-found sympathy with the Liberal party, because those were the heady days of the alliance that kept that Administration in power for another two years—

Mr. Kirkwood: I was not a Member of the House at that time.

Mr. Rees: I know that the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) was not in the House then, but if he cares to distance himself from the policies that were advocated by the hon. Gentleman who then represented two thirds of his constituency and whose campaign I understand he masterminded with such assiduity and skill, I shall willingly give way. Is he prepared to say publicly that he would now prefer to distance himself from the activities of the Liberal party in alliance with the Labour party under that Administration?

Mr. Kirkwood: The Chief Secretary must be joking. The period of the Lib-Lab pact was one of the most successful periods of Government that the country has seen since the war in terms of the reduction in inflation and a series of other economic factors with which I shall not detain the Committee. The right hon. and learned Gentleman should not look to me. It is right that I was not a Member of Parliament then, but I in no way repudiate that period. The history books will show that that was one of the most successful periods of Government.

Mr. Rees: There will be other occasions to explore that bold assertion. I think that historians may reach a different conclusion.
Let me remind the Committee that, having introduced this ill-judged tax at 2 per cent., a couple of years later the Labour Government raised it to 3·5 per cent. There was very little attempt to justify the tax in terms of what it would do for investment or jobs. It was just a crude


response to a crisis that had been created by the profligacy of that Government. Opposition Members who doubt that would do well to reflect on the debates. They will see that the hon. Member for Birmingham, Perry Barr (Mr. Rooker) picked up a point as a result of which the right hon. Member for Leeds, East (Mr. Healey) admitted that the introduction of the tax would almost immediately result in a loss of 10,000 jobs.
The hon. Member for Stoke-on-Trent, Central (Mr. Fisher) put to me a series of questions; he asked whether I could say over what length of time there would be an increase in jobs. Of course I cannot. The economy is not such a precise machine as those who adhere perhaps to Marxist philosophy would believe—and I do not know the philosophical or economic stance of the hon. Gentleman. There is an area of imprecision. There is a range of factors that even Ministers, with all the resources of the Treasury at their command, should be unwilling to forecast, and I will not satisfy the hon. Gentleman's curiosity.

Mr. Fisher: Of course I can see the complexity of the issue. Will the right hon. and learned Gentleman then agree that if it is impossible to forecast accurately and responsibly the Chancellor should not have been so bold as to make rhetorical claims for a reduction in unemployment?

Mr. Rees: I shall associate with my right hon. Friend's rhetoric in the best sense, because I believe that it is founded on good sense and on the likely outturn of events.
Various points were made by Opposition Members in an endeavour to distance themselves from the simple proposition that commands support from both sides of the House that this is a worthwhile provision because national insurance surcharge is a bad tax. It takes a Conservative Administration to deal with it. It is not often that I carry the whole Committee with me. Therefore I suppose I must savour this moment of exquisite pleasure.

Mr. Bermingham: Will the Chief Secretary please explain to the Committee why, if it is such a bad tax, it is proposed to continue imposing it on the public sector parts of the economy?

Mr. Rees: The problem with the hon. Gentleman is that he so often comes in two thirds of the way through a series of debates. Clearly he was not here for the debate on the amendment that was moved earlier by the Opposition. [Interruption.] Perhaps the hon. Gentleman will contain himself now, and on another occasion he might care to listen to the debate.
I know that he is an agile debater. We know of his exploits in the police courts and we know that he is a man of a silver, agile tongue whose charms are widely appreciated inside and outside the House. All I can say is that perhaps it would advance debate if he were to listen to all the speeches.
If I may return to the subject which should be engaging our attention—

Mr. Terry Davis: Yes, please.

Mr. Rees: The hon. Member for Birmingham, Hodge Hill (Mr. Davis) will recognise that I have been sticking to the clause that we are supposedly debating and that I have generously given way so far to any hon. Gentleman who has sought to intervene if he has had a point that bears on the debate.

Mr. Terry Davis: The Chief Secretary has made some personal comments about my hon. Friend the Member for St. Helens, South (Mr. Bermingham). I shall speak later in the debate.

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Mr. Rees: My comments were limited to the intervention of the hon. Member for St. Helens, South (Mr. Bermingham) and I suspect that he is well able to look after himself. I cannot understand how the hon. Member for Hodge Hill can misconstrue my remarks. Perhaps he will explain later. I prefer to revert to clause 113.
The clause is designed to abolish a tax that is universally acknowledged to be a bad tax and is long overdue for abolition. Labour Members have been taking us to task and claiming that there have been no moves on this front since 1979. They seem to be oblivious of the fact that the tax has been steadily reduced.

Dr. Oonagh McDonald: The Chief Secretary continually claims that the reduction in the surcharge and its proposed abolition will lead to an increase in the number of jobs. Where are the jobs?

Mr. Rees: I have so far been dealing with the background of the tax. I do not recall whether the hon. Lady supported its introduction. If she had been listening to my exchanges with the hon. Member for Stoke-on-Trent, Central (Mr. Fisher), she would have heard the answer to her question.
The tax has been steadily reduced since the Conservative Government came to power in 1979. Finally, it comes to be abolished. I do not believe that the pleasure of the House at our proposal need be qualified. It is a good proposal which deserves universal support.
Over the past five years., we have been engaged in a process, which will be completed by the Bill, of restoring £3 billion to employers. That money will be available for investment and I was delighted to hear the hon. Member for Stoke-on-Trent, Central say that it may increase profits. If employers are so minded, the money could enlarge their scope for taking on more employees. More important, it will lower unit costs, increase our industry's cost competitiveness, provide a fillip for exports and leave companies with greater resources for investment and, ultimately, sustained improvement and sustained jobs. Surely those are worthwhile objectives. I believe that they should commend themselves to both sides of the Committee.
In opposition, the Labour party is full of frothy rhetoric about industry and employment. It takes a Conservative Government to do something about those matters. On that basis, I commend the clause to the Committee.

Mr. Bermingham: I listened carefully to the Chief Secretary's comments about me. It has always seemed to me utterly counter-productive to go down the road of personal exchanges, because one does not make good debating points that way.
I concede that I missed the previous debate. I was talking to some Iranian students about their claims that Iranians had been beaten up in their embassy; I do not intend to go down that road either.
I took the trouble to ask the Opposition Front Bench spokesmen whether an explanation had been given of the salient fact that the surcharge was to be removed from the


private sector but not from the public sector. I thoroughly agree that the removal of the surcharge from the private sector is a good thing. I used to be an employer in the service sector and I know that the surcharge created problems and was a disincentive to take on staff.
I sometimes make interventions to save making speeches, because I find that a much more economical way to proceed, and I asked earlier why it was necessary to wait until October to remove the surcharge. I pointed out that in June VAT will be imposed on the glass industry, which is close to my heart as it is centred in my constituency. Why cannot the surcharge be removed in June, as a quid pro quo which might help industries in my constituency?
I checked whether anyone had explained why the public sector is still to suffer the burden of what everybody agrees is a rotten tax. The Chief Secretary was right to say that the removal of the surcharge will lower unit costs. The removal of the surcharge in the manufacturing public sector—the steel industry, for example—would also lower unit costs and help that industry to be competitive.
The removal of the surcharge from the rest of the public sector might contribute towards a reduction in the rates burden on industry, which would reduce the unit costs of manufactured goods and make them more competitive.
I cannot understand why the tax is still to be imposed on the public sector. Is there some blind prejudice which benefits the private sector at the expense of the public sector? I hope not, because if we are to have government based on prejudice, we shall not have a good Government —not that I think that we have a good Government; we have a pretty awful Government, as I have said ever since I was elected to the House.
Let us at least be told the logic and the reasoning behind the decision to provide a benefit for the private sector—I welcome the effects that it will have on investment—but to deny that benefit to the public sector. It is not too much that an ordinary Back Bencher should ask such a simple, fundamental question. I sought to do it by way of an intervention and I got no answer, but merely comments on my debating technique. So be it. I now ask the question on my feet.
I believe that open government is valuable government. It means replying to important questions. My question is simple. Why should a tax that is of no use to anyone and is a disincentive and increases unit costs be removed from the private sector, but not from the public sector?

Mr. Terry Davis: I shall not comment on the personal remarks of the Chief Secretary. It is possible that he did not realise what he said, but I suggest that if he reads Hansard he will agree that his choice of language was infelicitous. I know that the right hon. and learned Gentleman is a sensitive man and I think that, on reflection, he will agree that his remarks were unfortunate. If he has any doubts about that, I suggest that he talks to some of his colleagues on the Government Front Bench. The Chief Secretary criticised my hon. Friend the Member for St. Helens, South (Mr. Bermingham) for having missed our earlier debate. I can tell my hon. Friend that he did not miss much in the reply of the Chief Secretary.
The Chief Secretary teased the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) by asking him whether he wished to distance himself from the leader of the Liberal party. The hon. Gentleman asked the Chief

Secretary whether he ws joking. The Chief Secretary was not joking. He was quoting selectively from history. A good defence can be made for the Liberal party's attitude to the introduction of the tax, but it is for the hon. Gentleman to make it.
The hon. Member for Harborough (Mr. Farr) seemed to have misunderstood the import of speeches made by Opposition Members. He said that we had claimed that there was nothing much to welcome in clause 113 and that my hon. Friends had said that the clause was not necessary in their constituencies. It cannot be emphasised too strongly that that claim is simply not true. As my hon. Friends the Members for St. Helens, South, for Middlesbrough (Mr. Bell), for Wrexham (Dr. Marek) and for Stoke-on-Trent, Central (Mr. Fisher) made clear beyond doubt, the Opposition welcome the clause.
The hon. Member for Vale of Glamorgan (Sir R. Gower) recognised that we welcome the abolition of NIS but said that we had some strange addenda. That is not so. Our reservations about what is happening concern the refusal of the Government to extend the benefit of abolition to local authorities and nationalised industries. We understand the reason for that prejudice on the part of the Government, but we do not agree with it.
My hon. Friend the Member for Middlesbrough referred to exports by the steel and coal industries. He is quite right. If the abolition of the NIS is supposed to encourage exports, that encouragement should be given to the nationalised industries as well as to the privately owned industries.
The gas and electricity industries must continue to pay the surcharge. The price of gas and electricity adds to the costs of exporting industries, and it would certainly help those industries if gas and electricity could benefit from the abolition of the surcharge. I do not exaggerate that claim. The gas and electricity industries are not labour-intensive and the benefit would therefore be small. Nevertheless, it would be helpful.

Mr. Peter Rees: The hon. Gentleman seems to be suffering from a misconception. Does he not appreciate that the surcharge will be abolished even for nationalised industries, and that the external financing limits for this year have been set on the basis that the NIS will be charged? That is the very simple reason for the difference. Had I not assumed that the hon. Gentleman had understood it, I should have explained it at greater length.

Mr. Davis: I understand the position. I appreciate that the EFLs are based on the assumption that the surcharge will remain. I understand from a press release issued at the time of the Budget that EFLs will take account of the abolition of the surcharge from next year and that therefore there will be no benefit from the abolition for the industries concerned.
If the Chief Secretary can tell me that those industries will benefit from reduced labour costs as a result of the abolition I shall happily give way to him, but my understanding is that the Government are to ensure that no benefit accrues to the nationalised industries. They will do that by adjusting the EFLs during the next financial year. The Chief Secretary is nodding in agreement. The Government are taking steps to ensure that publicly owned industries will derive no benefit whatever from the abolition of the surcharge.

Mr. Fisher: What the Chief Secretary has said is correct about nationalised industries with a positive EFL, but some industries have a negative EFL, and that factor has not been taken into account. Those industries are not beneficiaries of the Government's policies. They are paying tax to the Government.

Mr. Davis: I am not sure whether I agree with my hon. Friend on that point. I believe that the EFLs of all nationalised industries—whether negative or positive—have taken account of the effect of the surcharge. None of those industries, whatever the EFL, will ever derive any benefit from the abolition of the surcharge. We believe that that is wrong. We do not begrudge the benefit to private industry. If we had done so we should not have moved our new clause on the subject last year. We want publicly owned industries to benefit, too.
Several Conservative Members, including the hon. Member for Harborough, reminded us that the surcharge was introduced by a Socialist Government. The hon. Member for Vale of Glamorgan added selective employment tax to the list of charges, and the Chief Secretary repeated it. I shall make the Government an offer. If they will stop referring to the NIS and the SET as Socialist taxes, I promise never to refer to other taxes as Tory taxes. Value added tax was introduced, and nearly doubled, by Conservative Governments, but I have never called it a Tory tax. It was introduced by a Conservative Government and reduced—though not abolished—by a Labour Government.

Mr. Cockeram: VAT was introduced as a replacement for purchase tax, which was abolished at the same time, whereas the SET and the NIS were additional taxes imposed on the employment of labour. They were not substitutes for any other tax.

Mr. Davis: The hon. Gentleman's point is entirely accurate, unlike some of his earlier remarks. On the other hand, if we look back to a period long before the hon. Gentleman or I came to the House, we shall find another example of a Tory tax.

Mr. Farr: Window tax.

Mr. Davis: We need not go back that far. I was thinking of income tax, which was introduced by a Conservative. It was introduced by Pitt to pay for a war. The war was over long ago, but we still have the tax. It was temporarily abolished, but reintroduced. Income tax could be described as a Tory tax, but it would be rather hard to do so today, bearing in mind the number of Labour Governments who have not abolished it. If Government Members will stop referring to taxes introduced by Socialist Governments as Socialist taxes I shall not describe other taxes as Tory taxes.
The hon. Member for Harborough made another mistake. He seemed to think that the Opposition intended to vote against the abolition of the surcharge. He is totally mistaken on that score.
The hon. Gentleman also said that the surcharge had been responsible for the decline in exports. The hon. Gentleman exaggerates. I agree that it has had an effect on our exports and on the competitiveness of privately owned industry, but to say that it has been responsible for the decline in manufacturing exports is to exaggerate.

Mr. Farr: I was merely repeating what had been said to me by the leaders of various industries in the city of Leicester. They have found the tax a great burden which has blunted the edge of their competitiveness when they have had to submit critical quotations for contracts overseas.

Mr. Davis: I accept the hon. Gentleman's explanation, but if those business men said that that NIS was responsible for the decline in British exports in recent years they were exaggerating. If that was so, why have the Government waited so long to abolish the surcharge? The hon. Member for Harborough did not vote for its abolition when he had an opportunity to do so a year ago. If the NIS is indeed responsible for taking the edge off the competitiveness of British exports, I am surprised that the hon. Gentleman did not extend his criticism to the national insurance contribution, because the same argument logically applies to it. I do not believe that he would want to go so far.
The hon. Member for Croydon, South (Sir W. Clark) argued that the money that had hitherto been paid by way of the NIS would now increase profits, and therefore the rate of return on investment. He said that the rate of return on investment was important in increasing the amount of investment. We all agree that the rate of return on investment is important, but he exaggerated the point. A much more important factor in the level of profits and return on investment must be the amount of demand in the economy. Several of my hon. Friends have made the valuable point that the size of the market is much more important than the NIS—smaller markets mean lower investment. As my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher) observed, the Government have pursued policies of deflation that have reduced the size of the market and demand and have therefore reduced profits and the return on investment.
The hon. Member for Lewisham, West (Mr. Maples) justifiably asked whether the NIS had ever been good for employment. By implication, he is correct, as it was never good for employment. The Chief Secretary reminded us that my right hon. Friends gave the relevant figures when it was introduced. They agreed that the tax would cost 10,000 jobs, but they also pointed out that it was a matter of choice. In the package of measures which they imposed in July 1976 they had to choose between a national insurance surcharge or an increase in VAT. They calculated that the necessary increase in VAT would have been 3·5 per cent., which would have cost 50,000 jobs—five times as many as the NIS. They could have reduced public expenditure, but if they reduced it by an additional £1 billion—they intended to reduce it by that amount anyway—the total reduction of £2 billion would have led to cuts in public services which they were not prepared to countenance and cost even more jobs.
As the Chief Secretary reminded us, the evidence was given to the Select Committee. I suggest that the hon. Member for Lewisham, West should read that evidence. The total package was estimated to cost between 150,000 and 160,000 jobs. If the introduction of the NIS was responsible for the loss of 10,000 jobs, the cost of cuts in public expenditure would have been between 140,000 and 150,000 jobs. It also follows that if the Labour Government had chosen to cut public expenditure, as advocated by the Conservative Opposition, there would have been an even greater reduction in jobs—about


300,000. I do not believe that the hon. Member for Lewisham, West would have supported that, at least in his more reflective moments. However, Conservative Members of the day advocated cuts on that scale.
The hon. Member for Lewisham, West also pointed out that unemployment doubled under the previous Labour Government. We can all quote statistics, but I simply remind him that unemployment has trebled under the Conservatives. Indeed, in absolute terms, it has quadrupled.
We all agree that the tax reduces employment and competitiveness. The hon. Member for Lewisham, West incorrectly suggested that the Labour party advocated its abolition four or five years ago. That also is an exaggeration. The hon. Gentleman also argued that if the tax had been abolished four or five years ago the extra money would have gone in increased wages, whereas now that will not happen. Three years ago the Labour party urged that the NIS should be reduced, and last year urged that it should be abolished. If abolition increases some wages, that should be welcomed. Many people receive low wages and if abolition of the NIS raises the wages of the low paid, that is more desirable than an increase in profits.
The Opposition welcome clause 113. It is better late than never. The Chief Secretary claimed to have carried the Committee with him. That was another of his pardonable exaggerations. The truth is that it is the Opposition who have carried the Committee. We have not persuaded the Government to do everything—we have not persuaded them to extend the benefit to local authorities or nationalised industries—but that was to be expected. At least and at last we have persuaded the Government to give this small help to manufacturing industry, and we shall certainly vote for clause 113.
Question put and agreed to.
Clause 113 ordered to stand part of the Bill.

Clause 27

INTEREST PAID ON DEPOSITS WITH BANKS ETC.

Mr. Cockeram: I beg to move amendment No. 60, in page 16, line 31, at end inser—
'(2) In calculating the tax payable in accordance with subsection (1) the first £70 in any special account, or the first £140 in any joint special account, shall be excluded, and no assessment of income tax shall be made on the person receiving payment of such interest, provided that the account is approved by the Inland Revenue and that the person entitled to any interest holds only one such special account.'.

The Temporary Chairman (Sir Michael Shaw): With this it will be convenient to discuss also the following:
Amendment (a) to the proposed amendment, leave out `£70' and insert '£80'.
Amendment (b) to the proposed amendment, leave out `£140' and insert `£160'.
Amendment No. 47, in schedule 8, page 136, line 43, at end insert—
'(h) it is a gross interest account, namely a savings account approved by Inland Revenue having a maximum balance of £1,500 for a single account or £3,000 for a joint account and being the sole account held by the person to whom interest is payable.'.
Amendment proposed to amendment No. 47, leave out `£1,500' and insert `£3,000'.

Mr. Cockeram: We all know the phrase, "The unacceptable face of capitalism" and I believe that clause 27 will come to be known as the unacceptable face of Treasuryism. If it is implemented, the composite rate of income tax, which at present applies to building societies alone, will apply to all interest paid on personal deposit accounts at banks.
The composite rate of tax is to be 25 per cent. rather than the normal 30 per cent. It is worth examining why the rate is to be reduced to 25 per cent. It is an average rate of net tax paid by a spectrum of the population. It takes into account the fact that there are many non-taxpayers because they receive low incomes, are children or are old-age pensioners. It is incongruous for the Government to raise personal allowances as they have done in the Bill by 12 per cent. and to claim that by so doing they are taking 850,000 people out of income tax if, at the same time, they impose this composite rate of income tax on all bank interest which will bring into tax people who formerly have not paid tax for the reasons that I have outlined.

Mr. Bermingham: I agree with every word that the hon. Gentleman has said so far, but does he accept that the British Bankers Association, in a briefing document sent to many hon. Members, has estimated that approximately 3 million non-taxpayers have deposits or savings accounts?

Mr. Cockeram: I acknowledge the expertise of the source of that information, and if that is the association's estimate, I am interested to know it.
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It was a declared and avowed policy of the Government at the general election, fought only 12 months ago, to reduce the burden of taxation, but this proposal goes contrary to the principle on which we fought the election. One may ask therefore why the Treasury has come forward with this proposal. It has declared that it has done so to conform with another aim that was part of the manifesto, that to reduce the number of civil servants. I freely accept that the proposals to deduct from bank interest at source the composite rate of income tax will involve many fewer civil servants than when, as now, interest is paid gross and the tax is collected in arrears from those who are subject to tax, but the effect runs contrary to the declared policy of the Tory party.

Sir Raymond Gower: While my hon. Friend is making these valid points, perhaps he will explain how the Treasury's proposal squares with the third objective of our policy, which is to simplify the tax structure.

Mr. Cockeram: One can have two views on that. It can be claimed that the tax structure is being simplified, but it is not part of our policy to create anomalies and injustices in the process of implementing that proposal.
The amendment proposes that bank interest shall in future be treated in the same way as bank interest in an ordinary account in the National Savings bank, whereby the first £70 of interest on a personal account and £140 on a joint account are exempt from taxation. It seems that the Government's proposal differentiates between private sector banks and building societies and the public sector in the shape of the National Savings bank by imposing a tax on the former and exempting the latter. That is not what the Conservative party sought to espouse at the last general election.
The proposed amendment will have the effect of enabling banks in the private sector to treat those on low incomes with an account at the bank in the same way as they are treated in the public sector. The banks in question will be called upon to declare to the Inland Revenue the names and amounts of interest that is paid.
I suspect that when my hon. Friend replies, he will refer to the possibility of evasion if the amendment were to be carried, but I point out that the possibility of evasion exists at the moment with the National Savings bank. There is nothing to stop a person opening an account in one part of the country and claiming the £70 of interest free, going to another part of the country and opening another account, then sitting back and waiting to see whether the Treasury, via the Inland Revenue, catches up. That is possible at the moment, but the Treasury is clearly satisfied that it is not happening on a material scale or it would not continue the concession.
It is the policy of this Government to exempt from income tax as many as possible of those on a low income, because we are indulging in a rather generous policy in paying out as much as the country can afford on social security and other benefits to such people. It is incongruous to suggest, therefore, that those people should, at the same time, be taxed, as they will be if the clause is carried. We declare that it is our policy, as it is, to encourage thrift across the full spectrum of population, including those on low income, but this clause will go against that policy.
The clause will particularly hit the Trustee Savings bank which has a high proportion—almost 100 per cent.—of its deposit accounts from the private sector, as distinct from the clearing banks which have a large proportion of their accounts with companies and the corporate sector. Some 20 per cent. of Trustee Savings bank accounts from the private sector belong to those on low incomes—children, pensioners and others. It is that 20 per cent. that will in future be subject to taxation if the clause is carried. That is not part of what we fought an election on 12 months ago.
The proposal is that the accounts so specifically designated in the four banks will be treated in the same way as are similar accounts with the National Savings bank. Interest will be paid gross and the account will be clearly designated as such. For those who say that we are seeking fiscal neutrality that treats everyone alike, I shall add two comments. First, this amendment also referred to building societies when I first tabled it, enabling them to offer similar accounts. For technical reasons, I was advised that references to building societies had to be removed from the amendment, and so they were. I hope that when my hon. Friend replies he will note my comment and perhaps refer to building societies as well.
My second point about fiscal neutrality is that I hope that my hon. Friend will not use that argument to justify clause 27, because if he does, I shall intervene to ask him why, if he believes in fiscal neutrality, he has not ensured that the National Savings bank similarly should charge the composite rate for its interest, which at the moment is paid gross. If we believe in the theory of fiscal neutrality, we believe in it not merely for the private sector but for the public sector.
Linked with amendment No. 60 is amendment No. 47 to schedule 8, which is an alternative way to achieve similar objectives. The amendment would allow the creation of gross income accounts with a capital sum of

£1,500 maximum in the name of any one individual or £3,000 for a joint account, the interest on which would again be paid gross to achieve some of the objectives of the earlier amendments. Each individual, or in the case of the joint account, each pair of individuals, would be allowed only one such account as they are at the National Savings bank. Again, interest would be declared to the Inland Revenue by the banks.
Lest anyone were to say that this would create an anomaly or a difficulty, I point out that schedule 8 already lists seven exemptions. My proposal would add an eighth. Under schedule 8, banks are instructed to pay interest gross on timed deposit, on debentures, on deposits taken in the ordinary course of business activities, and on debts on a security on sums deposited by someone outside the United Kingdom. Foreign banks are covered as they will not be required to pay interest net. I do not think that the House will find anything unacceptable in my eighth addition to the list of exemptions in view of the anomalies that will be created if the measure proceeds.
It is interesting that the Wilson committee in 1980 advocated fiscal neutrality, as did the National Consumer Council's report on banking last year. Both those reports accepted the principle. The purpose of these amendments is to establish fiscal neutrality and to enable the private sector to compete with the public sector on equal terms. They propose that thrift should be encouraged in all income groups and that conforms with Conservative policy, whereas the Bill offends Conservative policy. Accordingly, I seek the support of my hon. Friends.

Mr. Terry Davis: It might be helpful if I explain my amendments to the amendments tabled by the hon. Member for Ludlow (Mr. Cockeram). The hon. Gentleman referred to the general arguments for clause 27 and schedule 8. I shall not follow him in those arguments, although I agree with almost everything that he said. I hope that we shall be able to consider those arguments in the stand part debate if the amendments are not accepted. In the interests of brevity I must also say that I agree with everything that the hon. Gentleman said about the merits of his amendments. I seek only to persuade him to change the figures.
Amendment No. 60 follows a suggestion by the British Bankers Association, which sought to put all savings on the same basis as that for the Trustee Savings bank. The figure of £70 comes from the present practice regarding interest and tax paid on accounts in the Trustee Savings bank.

Sir Geoffrey Finsberg: The hon. Gentleman means the National Savings bank, not the Trustee Savings bank.

Mr. Davis: I am grateful to the hon. Gentleman. I meant to say the National Savings bank. The Trustee Savings bank is one of those affected by the Government's proposals.
The hon. Member for Ludlow follows the lead of the British Bankers Association in seeking to put all accounts on the same basis as those in the NSB. I am asking him to increase the amount from £70 to £80, because in the Budget the Government have increased personal allowances by 12 per cent. It is therefore reasonable that we should also increase the amount of interest that is tax free. If the hon. Gentleman accepts my amendment, and if his amendment is accepted by the Government, I hope that the Government will extend it to the NSB. I am asking


for £80 instead of £70, on the narrow points of the Government's other measures which increase the amount of personal allowances. It is proportionate.
I have also tabled a amendment to amendment No. 47. I am seeking to provide for people to hold £3,000 in an account instead of £1,500. Having listened to the hon. Gentleman's arguments, I now understand how he arrives at the figure of £1,500. It is connected with the figure of £70. He is seeking to make the same provision with amendment No. 47, but in a different way, as he is seeking to make with amendment No. 60. My argument for inserting the figure of £3,000 instead of £1,500 arises as a result of the provisions for social security and supplementary benefit.

Sir Raymond Gower: Does the hon. Gentleman propose to confine his change from £1,500 to £3,000 and to leave the £3,000 for a joint account as it is?

Mr. Davis: Yes. Hon. Members will know from their constituency work that if someone has £3,000 in a savings or other account it is disregarded for the purposes of calculating supplementary benefit. The interest on those savings is also disregarded in that calculation. If we adopt the amendment tabled by the hon. Member for Ludlow we shall provide for people to be excused tax on interest on an account with £1,500. They will then be taxed on the interest paid on a sum between £1,500 and £3,000 if they have those additional savings in another account. I am anxious to achieve consistency, and it would be sensible for the Government to disregard the interest on savings of £3,000 for the purpose of income tax, in the same way as they disregard that interest for the purpose of calculating supplementary benefit. It makes no difference whether the account is a single or a joint one.
At present, a single householder on a long-term rate receives £34·10 per week in supplementary benefit and a single householder on an ordinary scale rate receives £26·80 per week. If that person has £2,000 in a trustee savings bank, he will be taxed on the interest which amounts to £80 a year. That is not right. It is in everyone's interest that people living in such straitened circumstances should be excused tax on their interest. The Government have accepted that those amounts are so small that they should be disregarded in the calculation of supplementary benefit.
I shall not make the point at length, because it is obvious. I hope that I shall be able to persuade Conservative Members to support my amendments to the amendments tabled by the hon. Member for Ludlow.

Sir William Clark: It is my pleasure to follow the hon. Member for Birmingham, Hodge Hill (Mr. Davis). It is always a delight to learn that Labour Members are now coming round to the view that interest and dividends are an essential part of the economy and should be encouraged rather than taxed out of existence. I welcome that change in attitude on the part of some Labour Members.
I hope that when my hon. Friend the Minister replies he will not have on the top of his brief an instruction from the Treasury to resist the amendments. Apart from having a bank account, I have no vested interest in banks. I accept that a composite rate is probably, on balance, from an

administrative point of view, extremely welcome, but we sometimes twist the economy for adminstrative purposes and anomalies creep in.
I am speaking with all the sincerity and force that I can when I say that it is time that we told the Inland Revenue that it is becoming paranoiac about loopholes in our tax system. One has only to look at the Bill. When it deals with the control of foreign companies, there is a labyrinth of restrictions on this, that and the other. Under the guidance of the Revenue the Treasury penalises the private sector to catch one person who is avoiding or evading tax. The Treasury penalises 999 taxpayers to catch just one.
The Minister may argue that there are too many loopholes. That will not wash this time because, as my hon. Friend the Member for Ludlow (Mr. Cockeram) said, the National Savings bank has enjoyed a tax exemption for some years. The Minister may argue that the exemption was given to the National Savings bank—which used to be the Post Office Savings bank — because of the Treasury premise that the interest paid was low. It used to be only 2·5 per cent. The evidence from the clearing banks is that many of their 3 million deposit accounts are held by people who are not in the tax bracket. To exempt accounts with a low interest rate from tax is small comfort to those who do not pay tax anyway.
I understand that the composite rate is to be 25 per cent., although it is not yet settled. That will hit many small depositors. People in the income tax bracket usually pay tax at the 30 per cent. rate. The argument is that, instead of paying 30p in the pound, savers with a deposit account will pay only 25p. That is fine for the taxpayer, but it is small comfort to the person who does not pay tax.
My hon. Friend the Member for Ludlow has explained why the composite rate is 25p rather than the standard rate. It is simply because so many people affected do not pay income tax. That is the only reason. In my experience, the Inland Revenue is never over-generous to the taxpayer. The lower rate is given not out of generosity, but out of a sense of rough justice because many of the people concerned do not pay tax.
Many people with deposit accounts at banks will hear that they are to be taxed and move their accounts from the banks. The clearing banks fear that there could be a massive withdrawal of funds. Has the Treasury worked out the liquidity ratio of banks if there were a sudden diminution in deposit holdings? I hope that the Government have considered that.
I agree with my hon. Friend the Member for Ludlow that the private sector should be encouraged. The Government have introduced economic packages for the private sector such as the business expansion scheme, the start-up scheme and the loan guarantee scheme. They are geared to help the private sector to increase its activity and the creation of wealth, yet the Government are introducing an inhibiting factor for the private sector.
I cannot understand the philosophy of the clause. Why penalise the private sector? What is so different about the National Savings bank? Why should the National Savings bank be exempt? Another advantage is being given to the public sector. Everyone knows that money in the National Savings bank is used by the Government to help with their borrowing requirement. There are many fiscal advantages in investing in Government stock, including exemptions from capital gains tax on the gilt market. The Government


are creating another advantage. People who invest their money in a bank deposit account will have to pay 25 per cent. tax without exemption.
I do not argue about whether the figure should be £70 or £80; the principle must be settled. The Government proposal is inequitable. I do not want to take away the £70 limit from the National Savings bank, but, in all fairness, people should enjoy the same exception whether they invest in the National Savings bank or any other bank. What is the difference? There is no difference, except that the Government cannot get their hands on deposits in other banks.
I hope that the Minister will accept the amendment. I urge him strongly to consider it. We have a year before the provision comes into effect. If during that year an announcement is not made about the £70 exemption, people will withdraw their funds from banks. That would be a retrograde step. I urge my hon. Friend, even if the drafting is defective, to do something about this matter on Report. I have never heard a Government say that a Back-Bench amendment is perfect. They often ask for it to be withdrawn because the wording is wrong. We do not mind that. We shall withdraw the amendment if the draftsmen can devise an amendment which agrees with the spirit of our proposition.

Mr. Fisher: It is a pleasure to follow the hon. Member for Croydon, South (Sir W. Clark) and the hon. Member for Ludlow (Mr. Cockeram). I certainly support the spirit of the amendment, although I prefer the amendments tabled by my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) because they are marginally more generous in the exclusion. I urge Government Members to support my hon. Friend's amendments. If my hon. Friend's amendments fall we shall support amendment No. 47. The spirit of all the amendments on this matter is the same. The all-party agreement is welcome and interesting. I hope that it is infectious and that the Minister catches the spirit and accepts the amendment.
The principle behind the amendment is crucial. It seeks to protect the small saver—the non-taxpaying investor. Does the Minister agree that the small, non-taxpaying saver should be protected? Is that person who is so insignificant to Governments worthy of being protected?
If the Economic Secretary accepts the amendment, let him say so now and we can move on to the next amendment. If not, will he explain why the Government have no interest in protecting the small saver and small non-taxpaying investor?
The people about Whom we are speaking include children and pensioners, and I declare my interest in the subject in that I have four children all of whom have savings accounts. Hon. Members with children, I am sure, recognise that we should encourage our children to be thrifty—to save their money and later to become good consumers—and spend their money wisely.

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Mr. Tim Eggar: I am delighted to hear a good Socialist arguing in favour of thrift among children. I hope that his children's money is not invested either in a bank account or building society account. If it is, he is doing them a disservice. If he wants to maximise the amount of interest they receive, helping them to become real rentiers, he should persuade them in the present circumstances to invest in the National Savings bank.

Mr. Fisher: The hon. Gentleman is wrong when he says that they should take that course in the present circumstances. At present, as in the past, it is perfectly acceptable for them to have their money in a bank. He is referring to what the situation will be if the amendment is not accepted.

Mr. Eggar: Perhaps the hon. Gentleman will telephone his local bank to ask what rate of interest is currently being paid on his children's accounts. He should then contact the NSB and inquire what interest they will get there. I suggest that he will then advise his children to shift their accounts to the NSB.

Mr. Fisher: We on these Benches are grateful for such advice. We should have to pay heavily for investment advice outside the House.

Mr. Terry Davis: My hon. Friend will appreciate that one always obtains good advice from Conservative members on where to place investment. I took the trouble before the debate to check the interest rates. The hon. Member for Enfield, North (Mr. Eggar) did not make it clear that he was talking about one type of NSB account. The ordinary account does not carry such a high rate of interest.

Mr. Eggar: Perhaps it can be described as suitable for children.

Mr. Terry Davis: I am prepared to accept—

The Temporary Chairman: Order. The advice bureau has gone far enough. Let us now return to the subject of the amendment.

Mr. Fisher: If the hon. Member for Enfield, North (Mr. Eggar) catches my eye during the Division, perhaps he will give me some more free advice on behalf of my children, who I am sure will benefit enormously from it.
The banks and financial institutions recognise how important it is that people are taught young the idea of saving and becoming responsible members of society. Naturally, the banks are not entirely disinterested in having them become savers. They do their job effectively and I accept that they are performing an important function.
I do not want to go too far into the realms of Dickensian sentimentality, but in addition to children who save, we must consider little old ladies and pensioners, who are often small investors in banks. For it is important that they should be protected in the way proposed by the amendment.
I hope that the Minister will give figures of the typical amounts of interest received on the deposits which will come into the maw of the Treasury. Such figures would establish beyond doubt the sort of level at which we should be aiming. My hon. Friend the Member for Hodge Hill is suggesting a level different from that suggested by the hon. Member for Ludlow. We could arrive at a definitive sum if we knew that average figure.
Of the 3 million non-taxpaying investors of whom the British Bankers' Association speaks in its brief, may I ask the Financial Secretary to say how many are pensioners and how many are children in the non-taxpaying bracket? Without those details it must be difficult for him to calculate the cost of the amendment, which—as it has been on the Notice Paper for several days—the Treasury should have costed out.
I presume that the hon. Member for Croydon, South is right to say that the Economic Secretary's brief is marked "Resist". If so, a costing must have been done, in which case the hon. Gentleman must have arrived at the number of pensioners and children who will be affected. Without that empirical evidence, his brief is worthless. If he does not have those statistics, I trust that he will obtain them during the remainder of the debate.
We accept that the Economic Secretary is an honourable man. But if he resists the amendment, there will be nothing to protect the people about whom we are speaking. Surely, he does not want to put young children and pensioners who are not taxpayers at a disadvantage. "As easy as taking candy from a baby" is a well-known expression. If the amendment is not accepted, it will be changed to, "As easy as taking tax from a baby". The Prime Minister's reputation of being a milk snatcher will, if the amendment is not accepted, be changed to describe her as a tax snatcher. She will become "Thatcher the children's tax snatcher", and I suspect that she does not wish to have that round her neck.
If the Minister has a heart behind his Treasury facade, let him throw off the shackles of his brief and accept the amendment, preferably with the Opposition amendments to it. His hon. Friends will come into the Lobby but will not know for what they are voting. If he throws away his brief and does the decent thing for young children and non-taxpaying pensioners, nobody will be any the wiser because his hon. Friends will vote the way they are told. I urge the hon. Gentleman to do the decent thing, to throw away his "Resist" brief and to improve the quality of life for those concerned.

Sir Geoffrey Finsberg: This is an interesting debate. I was somewhat worried by the warmth and—I hope that I shall not be accused of making personal remarks—weighty support of the hon. Member for Birmingham, Hodge Hill (Mr. Davis) for the amendment. He and I have had some duels in the past, and, for the benefit of the Economic Secretary, I shall refer to them later.
The Opposition amendments to the amendment are somewhat naive. They would go against one of the major points put forward by my hon. Friend the Member for Ludlow (Mr. Cockeram), that of fiscal neutrality, because the national savings figure would have to be increased, and that would give the perfect excuse to the Minister to reject the amendment because he could say that even more money would be involved. For that reason, Opposition Members cannot expect much support for their proposals in this matter.
The hon. Member for Stoke-on-Trent, Central (Mr. Fisher) does not need advice from my hon. Friends. Our very good friend, the grandfather of his children, Sir Nigel Fisher, could give him all the free and expert advice he needs, without incurring the wrath of the Chair, which I shall do if I go further into that matter.
If the hon. Gentleman is looking for the support of Conservative Members, he did not play his cards properly when he talked about my right hon. Friend the Prime Minister in terms of her being a child tax snatcher. That comment may persuade some of my right hon. and hon. Friends that we should not find ourselves in the same

Lobby, if there is a Division, as the hon. Gentleman. I caution him by saying that a good speech was spoilt by a throw-away line, which I do not think helped his case.

Mr. Fisher: I hope that the hon. Gentleman will temper his understandable loyalty to the Prime Minister by an examination of the facts behind the amendment. If he wishes to do the decent thing by non-taxpaying pensioners and young children, he must support the amendment, despite his loyalty to the Prime Minister.

Sir Geoffrey Finsberg: My loyalty to the Prime Minister stems from the fact that I believe that she is entirely right in thinking that the economy must be put right. However, I do not think that the Treasury is right in pursuing a policy which was never intended to have the effect which is now apparent.
My hon. Friend the Member for Croydon, South (Sir W. Clark) said that the Minister's brief would be marked "Resist". I am certain that that is so. Having had four years of briefs, I can confirm that it will be so marked. However, when I was responsible for taking the Dentists' Bill, as it then was, through Committee, with the hon. Member for Hodge Hill leading for the Opposition, I crossed out "Resist" on many occasions and said that I would accept an amendment because the arguments had convinced me that it would be right to do so. Alternatively, I said that I would consider an amendment. That did not endear me to some of my civil servants, but I felt that that was the right course.
I do not expect my hon. Friend the Economic Secretary to the Treasury to accept the amendment, but I do not expect him to say that he rejects it and will not consider the matter again. Many of his colleagues share his policies, including some who are as senior and distinguished as my hon. Friend the Member for Croydon, South. Against that background, he should say that he is prepared to consider the issue again. Of course, I expect him to say that he will do so without commitment. If he is prepared to take a chance by saying that he will accept the amendment, I shall not argue with him; I would not seek to persuade him not to take that course. I merely say that he owes it to his colleagues to say that he is prepared to consider the matter again.
I should declare my interest as a regional board member of the Trustee Savings bank.

Mr. Cockeram: My hon. Friend has reminded me of an omission from my speech. I should likewise declare a similar interest. I hope that the House will excuse me for my oversight, for which I apologise. I thank my hon. Friend for allowing me to intervene to make this correction.

Sir Geoffrey Finsberg: I have not enjoyed the benefit of any briefing from the British Bankers Association, which seems to be more at home with Labour Members. I am glad that that is so. I am delighted to learn of the late conversion of Labour Members. I listened with fascination to the information that was given to us by certain Labour Members.
With one exception, to which I referred in the VAT debate, my right hon. Friend the Chancellor of the Exchequer introduced a superb Budget. That being so, why do the Government have to muck it by penalising the private sector and favouring the public sector? However my hon. Friend the Economic Secretary may try to answer


me, that is the fact. If the clause is not amended, only National Savings bank depositors will be beneficiaries. There will then be direct encouragement for savers to transfer their savings up to about £1,200 a year, into the National Savings bank.
I did not believe that that was the Government's economic policy. That was certainly not the policy on which Conservative candidates contested the previous two elections. As my hon. Friend the Member for Croydon, South said, we have before us a Revenue idea. Revenue officials slip these provisions into complicated Budgets and Ministers find that they are stuck with them. That is not the way in which we should proceed. After all, Ministers and the House generally decide taxation policy. The responsibility for those decisions does not rest with civil servants of the Inland Revenue.
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There has been a growing feeling for too long—I accept that it may be wrong but my hon. Friend the Economic Secretary cannot say that it does not exist—among the British public that Revenue officials are becoming more and more domineering at the expense of the ordinary citizen. The preference that is to be given to the National Savings bank is not in accordance with the philosophy for which I have fought for nearly 40 years within the Conservative party.
As the hon. Member for Stoke-on-Trent, Central said, many little old ladies and little old gentlemen put their money into building societies on the advice of the same bank managers who no doubt told them to put their money into Rolls-Royce or the Mersey Docks and Harbour Board. Bank managers are great experts on investment! They put their money into building societies and they do not pay tax, but no one tells them that even in building societies they are paying the composite rate and are therefore on the losing side. This happens to many small investors—many of them are little old ladies and gentlemen—who have limited amounts on deposit in the joint stock banks and the Trustee Savings bank. As my hon. Friend the Member for Croydon, South has said, they are paying tax quite unnecessarily. There may have to be a campaign to persuade them to take their money out of these investments and to put it into the National Savings bank.
But why should we do that? My hon. Friend the Economic Secretary may recall that it was not so long ago when there was a substantial volume of opinion in the Conservative party that the National Savings bank and Giro should be taken out of the public sector and placed in the private sector. Instead, we are going very much in the opposite direction.

Mr. Bermingham: As the hon. Gentleman suggests, there would have to be an advertising campaign to persuade the non-taxpaying small depositor to place his savings in the National Savings bank. If that were to happen, the amount of money available to the joint stock banks, which are the basic funding source for much of industrial investment, would perforce decrease.

Sir Geoffrey Finsberg: That very point was made while the hon. Gentleman was absent from the Chamber, whether he was seeing Iranian students or not. The argument was well advanced previously. I make that point in a way which I hope the hon. Gentleman will not find offensive. If he reads the report of our debate in Hansard tomorrow, he will find that I am right.
My hon. Friend the Economic Secretary may talk about evasion. The proposals of my hon. Friend the Member for Ludlow appear to be sufficiently watertight to preclude evasion, coming as they do from a Bank Bencher. I accept that parliamentary draftsmen will be able to make them more watertight. If there is a will, the Treasury can will the means to meet the ends that my hon. Friends and I would like.
My hon. Friend the Economic Secretary is a courteous and receptive Minister and I am sure that he has grasped the direction of my argument. I do not ask him to say that he accepts the amendment—this may make some of my hon. Friends unhappy—but I ask him to say that if the amendment is withdrawn he will, without commitment, think about it again. That will give him a chance to tell us at a later stage where we are going from here.

Mr. Austin Mitchell: The hon. Member for Hampstead and Highgate (Sir G. Finsberg) put the case for the amendment with great effectiveness. It is a pity that he prepared a trap-door from which to escape the onus of voting for the amendment. It appeared that he was going to wound, yet was afraid to strike. He should strike, because his statements rang true and should be followed up.
I welcome amendment No. 60 and the improvements in amendments (a) and (b). The measures right a wrong that needs righting. There is no need for the composite rate. The system is being introduced to allow the Government to achieve their objective of cutting by about 1,000 the number of civil servants—an ambition which the Government pursue with no eye to the realities—in the Inland Revenue. The work will be shifted to the banks, which will charge account holders and spread the burden of charges down, as they usually do. The marble halls are good at putting the burden of changes and administration on the smaller customers, especially those who have overdrafts, as I do.
Amendment No. 60 rights an injustice for about 3 million people who receive interest but pay no income tax and who should not pay this form of taxation on their accounts. The composite rate measure breaches the basic principle of the taxation system that the income to he taxed should be aggregated so that those whose total income is below a taxable level do not pay tax. I am sure that if the people taxed in this way were part of a more powerful vested interest and richer section of society Conservative Members would make a greater outcry and the Government would display greater sensitivity.
The only fair way to get around the problem is to allow those who should not pay the tax to reclaim the tax taken by the composite rate. I assume that this system operates in other countries. Do other countries make provision to rebate the tax to those who should not be paying it because their income is too small?
It might be possible to give a certificate to certain account holders stating they are not eligible for taxation. That has effectively been done for account holders living overseas, and that scheme is being maintained in the legislation for another two years. Why cannot the accounts of smaller account holders who do not pay tax be certificated in the same way? These are principles of elementary justice. The reason given for not taking those measures is that it would be administratively inconvenient


and too expensive. The principle of reform in shifting work from the Civil Service to the banks would be undercut.
And wretches hang, that jurymen may dine.
Small account holders will be taxed because it is administratively inconvenient to do anything else.
Essentially, the Government are stealing money from account holders, when the Government are not entitled to that money. They are taxing people who should not be paying tax. That is theft, filching and tea-leafing. It is fiscal mugging. Taxing people who should not be paying tax is stealing—it is as simple as that. There is no reason to mince our words about this matter. The mites of the widows and orphans are being stolen. Money will be taken from those groups which the Government usually put in the front line in their defence of capitalism. There is usually an outcry from Conservative Members that taxation proposals will take the mite from the widows and orphans, but the Government are now doing the same thing in the name of administrative convenience.
The 3 million people affected must include many old-age pensioners. I hope that the Economic Secretary will cite the number of account holders who are old-age pensioners. The Government, when abolishing the investment income surcharge, said, "We are doing this because it will help many old-age pensioners." The Government prided themselves on removing that surcharge, which affects only those with savings of £70,000 or more. They said that their measure would help those on low incomes.
If that principle is all right when abolishing taxation, it should be maintained when introducing taxation. It is not right to abolish the investment income surcharge, justifying that action as helping old-age pensioners, yet to take money away from those same people on the ground of administrative convenience. All hon. Members will see in their surgeries people with bank account statements and books who will ask, "Why is this money being taken away?" We shall have to explain why that is happening, unless the amendment is accepted and the Government make some concession.
If this measure were being undertaken by a Labour Government—it would not, of course—the public relations agency employed by the Conservative party would attack us as piggy-bank raiders, mite milkers, penny-pinchers and all the adjectival diarrhoea that always pours out from the central Government agencies. The Government pride themselves on this measure.

Sir Geoffrey Finsberg: I hope that during this sudden outburst the hon. Gentleman will tell us why it was right in the years of Labour Governments for money to be filched from the elderly who had accounts in building societies. Why did the hon. Gentleman do nothing about that?

Mr. Mitchell: As I understand it—I hope that the Economic Secretary will correct me if I am wrong—most people saving with building societies have to pay tax. That is why many people go to building societies with their savings. They would have to pay tax on the interest from a bank deposit. We are now talking about non-taxpayers. The principle is iniquitous for people with accounts who are not taxpayers. Are the Government so desperate for money to keep the confidence trick of economic recovery

going that they must take the mites from the widows and orphans and pinch pennies from piggy banks in this fashion?

Mr. Eggar: As well as being an unpaid adviser to hon. Members' children, I am a consultant to a bank, although one that does not take retail deposits. It is well known to the House that people have worried about the differing treatment given to building societies and banks for a considerable time. Building societies and banks have had arguments about whom the different treatment benefits.
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During the debates on the Finance Bill 1982 I supported the idea that the Government are now introducing, which is that, if we cannot abandon the composite rate—there are good administrative reasons for not doing so—we must introduce the composite rate for the banks as well as the building societies.
I was slightly amused by the brief sent to me and other hon. Members by the banks. I am sorry that my hon. Friend the Member for Hampstead and Highgate (Sir G. Finsberg) was not included in the banks' largesse. They argued fiercely on behalf of the children, the small depositors and the non-taxpayers, yet they did not do that when the composite rate applied to the building societies. In fact, had they done so, they would have benefited because small depositors and non-taxpayers misguidedly invested in building societies, which allowed the building societies to offer a lower composite rate that was attractive to standard and higher rate taxpayers.
One of the most curious things about the battle between the building societies and the banks for retail deposits has been that the banks, rather than using their ability to pay gross and realise the marketing advantage in the amount of interest they could pay over the building societies, consciously preferred to pay a lower rate of interest and so reduce their funding costs.

Mr. Cockeram: My hon. Friend has referred to what he likes to call the battle between the banks and the building societies. There is no such battle. He has charged the banks with being inconsistent because they are now expressing an interest in the deposits of the small saver, widows and children. He overlooks the fact that the banks have always paid gross interest on such deposits and, therefore, they have not had cause to speak up on behalf of those investors who previously have not been penalised by paying tax. It is only now that such a proposal has been put forward that they need to point out the consequences of it. I hope that we will not become involved in what my hon. Friend chooses to call a battle between one financial sector and another. It has not been referred to by other speakers.

Mr. Eggar: I am sure that my hon. Friend will allow me to develop my argument in my own way. The banks complained about the so-called composite rate advantage for the building societies. It was an advantage because a number of small investors, who would have been best advised to invest in gross interest paying accounts, chose to invest in the building societies, thus reducing the effective tax paid by standard rate taxpayers.
The banks consistently failed to pass on gross interest payments to their depositors. They preferred to take the slight marketing advantage that they held—the difference between the net and the gross interest payments—and use it to reduce their funding costs.
The main argument against the Government's proposal is that it exempts National Savings accounts. We must examine whether that is a serious exemption. It gives the non-taxpaying investor an option—he does not have to choose a net paying account, he can choose a National Savings account where he will be paid gross. Will the Government use that tax advantage for themselves, or will it be passed on to the investor? I hope that my hon. Friend the Minister will answer that question.

The Temporary Chairman: Order. The hon. Gentleman is straying into a clause stand part debate. He must stick to the amendment.

Mr. Eggar: Although I take your point, Sir Michael, the amendment seeks to put bank and building society accounts on the same basis as National Savings accounts. I shall observe your ruling, Sir Michael, but would argue that the Government's policy on National Savings accounts is a crucial part of the issue. If the Government behave reasonably and pass on the advantage of the gross payment to the investor rather than keep part of it for themselves, my criticism would not apply.
There are three main reasons why I believe that the Government will be forced to pay a proper rate of interest on a gross basis. First, they will still have to compete with building societies and banks for deposits and will have to take account of the interest paid by them. Secondly, my right hon. Friend the Chancellor made a clear policy announcement in the Budget that interest rates on National Savings accounts would be kept competitive. That implies that they must be competitive with both market rates of interest and the different tax treatment of accounts.
Thirdly, there are sound monetary control reasons why it is in the Government's interest to benefit to the maximum from National Savings deposits rather than going to the gilts markets. However, I recognise that that argument might stretch the amendment a little too far.
I believe that what the Government are doing is fair and right. It puts banks and building societies on an equal competitive footing. My only slight reservation concerns the way that they intend to fix interest rates on National Savings accounts. I hope that my hon. Friend the Minister will reassure me on that point.

Mr. Bermingham: I apologise to the hon. Member for Hampstead and Highgate (Sir G. Finsberg) for missing the point that he made in an earlier speech. I am grateful to him for explaining it to me.
I agree with the fiscal arguments advanced by the hon. Member for Enfield, North (Mr. Eggar) on purely monetary matters. However, the House should address itself to more philosophical questions, such as that posed not only today but in previous sittings of the Committee when the Financial Secretary said that we must look at the Budget in the whole and at what is given and what is taken.
I have looked extremely carefully at the Budget and I have seen the various gifts—for example, the abolition of the national insurance surcharge, which we discussed earlier. I also see what has been taken. We have been given an undertaking that the abatement of the long-term hardship payment of 5 per cent. will be reconsidered. That means nothing, because the long-term chronically sick are suffering. Many of them are non-taxpayers, yet they suffer a £3 a week deduction.
Let us consider what the Treasury has done about the composite interest rate. I do not want to repeat the

arguments of many hon. Members, including Conservative Members, with whom I agree. I add my support to amendment No. 60. They are saying that it is not philosophically correct to tax the untaxed—that is, those who should not be subject to taxation. I believe that that is a fundamental principle of taxation, and that is why I urge amendment (a) to amendment No. 47 upon Conservative Members and the point that it makes about social security benefits. The amendment would make the minimum balance £3,000, whether for a single person or a married couple. It is only right that someone who receives social security should not suffer taxation on the interest that may be earned on a small saving, which is often such a person's sole capital asset. Often it represents the cost of his funeral.
The philosophical point is whether it is right to tax those who should not be subject to tax. I hope that that consideration is at the heart of this worthy amendment, which I support. I openly acknowledge the point made earlier about building societies. I am prepared to go on record as saying that I do not believe that the composite rate for building society investments—it is 25 per cent., when taxation is taken into account — is morally justified. I said that within my party before I came to House, and I shall continue to say it, because I cannot see how it is morally or philosophically correct to penalise someone with a few paltry pounds of savings. If he is not currently in a position to pay tax, he should not have to pay it now. I support the amendments, because they pass taxation along the line.
At the end of the day the Government must justify themselves on moral grounds and on whether a measure is fair, and not consider it simply in terms of votes in the House. The justification of fairness cannot often be provided, although the result will be delivered because of the Government's voting strength.
I should like the Minister to explain how it is that if I have, say, £50,000 in cash and put that into a bank on deposit for 28 days I can get a certificate and do not have to pay any tax. I leave the Treasury Ministers to work out the interest at 10 per cent. over 28 days, but I believe that it is just under £1,000. If I were to spend that £50,000 on a house, so that I have no more unearned income and only a small pension from my income in any year, I should not pay tax on the interest earned in that 28 days.
I have another question for the Treasury Ministers. if I had a very high unearned income, it would be in my interest to stick some money in a building society, if the measure were passed, as there would be a composite overall lower rate of tax to pay on it, because I would pay tax at the new rate. If I am wrong in that, no doubt the Economic Secretary or the Minister will correct me. There are ways in which I can manage my affairs so as to minimise my tax liabilities. It seems, once again, that if one is at the top end of the scale one is doing all right, but that if one is at the bottom and is not meant to pay tax, one is not doing so well in terms of the Budget.
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I keep returning to what the Economic Secretary said in answer to a remark made earlier in Committee. I continue to look quite happily for an answer to the question whether those at the bottom of the scale will get anything out of the Budget.
I find what is proposed quite remarkable The Committee of London Clearing Bankers described the


composite rate as "unjust" and as "Robin Hood in reverse" and said that the measure would force the 3 million bank customers who pay no tax into the tax net; worse, that it would subsidise the better off. It cannot usually be said that the committee of London Clearing Bankers is a great supporter of the Labour party, but if it says that the proposal is not very fair, I tend to listen, because it may be right. Perhaps it is just like the glib undertaking given the other night about abatement.
I shall try not to use emotive phrases when I talk about children's piggy banks. I do not need to do that, as the story speaks for itself. When I was at school a long time ago, we had a penny savings club. We brought in our pennies and piled them up. Now we say to our children or grandchildren, "When you take your pennies into Lloyds or Barclays or Natwest, do not worry. You will be learning two lessons, because the Government have said so. Lesson one is how to save, and lesson two is how to pay income tax." Income tax payments will start in the classroom, with kiddies' savings, if the measure is passed unamended.
I say with due respect to the hon. Member for Hampstead and Highgate that, although I have been in the House for only nine months, I have learnt that it is dangerous to say that we may be given an undertaking by the Government if the Minister considers the matter. That never happens.

Sir Geoffrey Finsberg: Rubbish.

Mr. Bermingham: It is not rubbish. It does not happen unless the Government give a firm undertaking that x or y will be done. If the Minister stands at the Dispatch Box tonight and undertakes to bring forward a clause to enact the spirit of the amendments that have been introduced by hon. Members, we shall all go home happy at a day's work well done. On the other hand, if the Minister merely says that he will think about the matter, my natural north country suspicions will be aroused. I shall say to myself when the Minister returns, "Not much change"—to use a good Lancastrian and Yorkshire expression. That means that the piggy banks of England will be—

Mr. Kirkwood: What about the piggy banks of Scotland?

Mr. Bermingham: I apologise to the hon. Gentleman for omitting Scotland and Wales. Those piggy banks will become, so to speak, the first steps in a child's taxpaying life. That is not very nice to think about.

Mr. James Kilfedder: There are piggy banks in Northern Ireland, too, and I accept the apology of the hon. Member for St. Helens, South (Mr. Bermingham).
I support my hon. Friend the Member for Ludlow (Mr. Cockeram). I note that the Minister has not shown much sign of responding to the speeches made in Committee. This short debate has been marked by much good humour and I hope that the Minister will not make a bland speech or a speech merely saying that he will consider the points raised by hon. Members. I intend to support the amendment, if need be in the Lobby. An important principle is involved. It is not just a question of 3 million depositors. The Government should ensure that someone who does not pay tax is not forced to do so as a result of the Bill.
I declare an interest as a member of the Trustee Savings

bank parliamentary committee. I am anxious to ensure that the Government adopt the amendments, particularly as many people, both young and old, save with the Trustee Savings bank. I urge the Government to accept the

Mr. Farr: I support my hon. Friends the Members for Ludlow (Mr. Cockeram) and for Croydon, South (Sir W. Clark), and the two amendments. I understand that they have the full support of hon. Members on both sides of the House and that there is, unusually for the House, unanimity on this subject. I hope that my hon. Friend the Minister is listening to me, and that he will consider what my hon. Friend the Member for Croydon, South has said. If the brief of my hon. Friend the Minister says that he should resist the amendment, I hope that he will bear in mind that the amendments have been tabled in a most friendly way and that we do not expect a categorical refusal. If, for good reasons, he cannot give us as full or as hopeful an answer as we might have wished, we nevertheless hope that he will be reasonably helpful about the future conduct of affairs.
I was particularly impressed by what my hon. Friend the Member for Hampstead and Highgate (Mr. Finsberg) said about those who will be caught inadvertently by the Bill. In a telling speech, my hon. Friend said that the same old ladies and gentlemen who had been caught before would be caught again, perhaps because they had followed, through lack of experience, advice that was not as good as it should have been. I agreed with what he said about the old ladies who had been advised, and who had paid the price for not receiving very good advice in the past. They are typical of the vulnerable elderly, not only in Hampstead and Highgate but in Harborough and the rest of the country. They are patriots— the sort of people who would invest in war loan. They probably took the bank manager's or Government's advice many years ago. They always seem to lose out, so the Government have a duty and responsibility to put the matter right.
I have no interest to declare other than the fact that the Leicester building society and the Market Harborough trustee savings bank are in my constituency. They are very distressed about the situation. I fully support my hon. Friend the Member for Ludlow about the changes that should be made to put the National Savings bank on an equally fair and competitive footing as the Trustee Savings bank and the building societies. If the same exemption as now applies to the National Savings bank applied to building societies and the Trustees Savings bank there might be a saving in administrative costs for the Inland Revenue.
I have followed the debate quite closely and I cannot believe that the Government intended this situation. If my hon. Friend the Minister is in any doubt about what hon. Members have said today, I will arrange a meeting for him in my constituency with the chairman of the Leicester building society and the chairman of the Market Harborough trustee savings bank. He will then hear from the horse's mouth of their apprehension about the severe effects that the Bill will have on their economies unless some change is made.

The Temporary Chairman: Before calling the Minister to speak, perhaps I should say that I am grateful to hon. Members for the way in which they have stuck, in general, to the terms of the amendment. Inevitably, the debate has moved to the fringe of what I felt was possible,


and I suspect that the Minister may well feel that he will have to move towards a general clause stand part type debate. If that is so, I trust that any widening of the debate will be kept to a minimum and that any points made in his concluding speech will not be repeated during the clause stand part debate. I thought that that guidance might be helpful.

The Economic Secretary to the Treasury (Mr. Ian Stewart): I shall endeavour to follow your guidance, Sir Michael, which has been most helpful to us.
The debate has ranged widely over the principle of the composite rate, and it is not really possible for me to reply properly without mentioning that, as well as the technical points raised by the amendments. My hon. Friend the Member for Ludlow (Mr. Cockeram) pointed out that the amendment had, for technical reasons, been tabled only in relation to bank deposits. He asked me to bear in mind that it was not his intention that the suggestion of the amendment should be that banks ought to be treated differently from building societies. Accordingly, I shall address my remarks to the spirit of the amendment and not just to the technicalities, as that would limit me to the proposal for banks alone.
It would, of course, be absolutely outrageous to propose that there should be an unfair advantage to the banks through having such tax-exempt arrangements if a composite rate is applied to them, if building societies, which have had a composite rate for a long time, are not treated similarly. Amendment No. 60 seeks to exclude the first £70 of interest from the composite rate for the taxpayer. Amendment No. 47 provides that banks should be allowed to hold gross interest accounts for the purpose of paying the gross interest, which would then be exempt in the hands of the taxpayer. So the two go very much together.
If the proposals were applied both to the banks and the building societies, they would cost £300 million to £350 million a year. Amendment (a), tabled by the Opposition, would mean a figure of about £400 million, because they ask for higher figures on the gross interest accounts and higher figures for exemption from the composite rate to the depositor. The provisions for special accounts contemplated by these amendments would complicate the whole system of the composite rate in a way in which it would not be easy, or feasible, to manage. The amendments would cut across the concept of the composite rate, which is designed to introduce greater simplicity and parity of treatment for depositors. They cannot be accepted on those grounds, and the ground of cost.

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Sir William Clark: The formidable cost of £350 million presupposes that present deposit accounts will remain where they are. If, as many hon. Members believe, most deposit accounts are switched from the clearing banks to the National Savings bank, the loss will be equal because the £70 exemption will also be switched. Is the £350 million cost, which is a frightening figure, the net cost after the Treasury's estimate for the switching of funds? If all present small deposit accounts were switched to National Savings banks, it would still cost the Revenue £350 million. Therefore, the effect of the amendments would be nil

Mr. Stewart: I appreciate my hon. Friend's point. That is why I can only give an approximate figure of the

potential cost and cannot be specific. The impact will depend on the way in which funds are moved between homes. I shall come later to the question of movement.

Mr. Cockeram: If the opposition of my hon. Friend the Member for Croydon, South (Sir W. Clark) were followed through, and all those people who are not liable for income tax were to switch their accounts to the National Savings bank, what would the consequences be for the composite rate? In those circumstances, with the tax-free element removed, the composite rate would be the same as the standard rate of 30 per cent., and the knockon effect on savings in building societies would be considerable.

Mr. Stewart: The point raised by my hon. Friend wall arise on clause 26 when we shall consider how the composite rate is established.
If there were no non-taxpayers with bank or building society accounts and the composite rate applied, the composite rate would move rapidly to 30 per cent. That did not happen with building societies, and it is unlikely to happen with banks when the composite rate is applied to them.

Sir Geoffrey Finsberg: The Minister cannot expect the Committee to accept his figure of £350 million without answering the question of my hon. Friend the Member for Croydon, South (Sir W. Clark). The Minister must have calculated how much money would be affected the other way. The Committee is entitled to ask him for at least a rough figure.

Mr. Stewart: I am not entirely sure what figure my hon. Friend seeks, but if he tables a question I shall give him precise information.
The figures take into account the likelihood of movement of non-taxpayers' accounts from banks when the composite rate is applied to them. However, they do not assume that all non-taxpayers will move their accounts from banks. There are many uncertainties — for example, the attitude of the banks to the level of interest rates which they set when the composite rate applies. We took those factors into account and our best estimate has been between £300 million and £350 million. Some bank customers may move to building societies and yet remain within the composite rate. It is almost impossible to predict exactly how these dispositions will take place. I shall return to the question of the movement of funds between the two bodies.
The hon. Member for Birmingham, Hodge Hill (Mr. Davis) spoke to the amendment which substitutes £80 for £70. He suggested that on the basis of indexation or uprating of personal allowances the £70 figure should be set at £80. That figure is not appropriate for indexation in that way or in relation to personal allowances. The amount of interest received varies as much by changes in interest rates as by the amount in the deposit. We should not bring the figure of £70 into the indexation provisions.
The hon. Member for Stoke-on-Trent, Central (Mr. Fisher) asked how many non-taxpayers would be affected, and how to cost the implications of the amendments. Their cost arises, not from the lack of imposition of tax on non-taxpayers, but from the exemption of tax from taxpayers. The figures are based on the assumption that most depositors with banks and building societies are taxpayers and would be relieved by a provision for a £70 or £80 exemption.
The amendments would introduce a hybrid arrangement into the composite rate system in the building societies and banks, which would make the arrangements exceedingly complicated. One of the main purposes of the composite rate system is to bring about greater simplicity. It was suggested that the arrangements were designed by Revenue officials whose attitude was not always helpful. May I say in their defence that I am sure that the Revenue officials who implemented the existing arrangements with building societies, will behave scrupulously when the new arrangements are introduced.
The position on the payment of composite rate tax was that there was a major distortion between the building societies and the banks. My hon. Friend the Member for Croydon, South and others asked the Government to reconsider our decision. We gave careful thought to our proposals before the Budget. All the points raised tonight were considered then. In view of the reaction to the proposals since the Budget, I have examined the provisions carefully in the light of what was suggested, but still believe that we should introduce the composite rate proposals as stated in the Budget. It would be dishonest and misleading of me to say that I shall reconsider the proposals with a view to changing them.
It is better to be straightforward and clear about that rather than to say something which might lead my hon. Friends or anyone else wrongly to believe that we would consider changing the proposals in the way that they have asked.
We cannot leave the discrimination between building societies and banks under the composite rate system as it is now. It is a major distortion. The Wilson committee said that the two should be put on a common basis. The National Consumer Council described the composite rate system applied to building societies as a major competitive imbalance. Indeed, the Wilson committee said that the building societies had an unfair advantage over other savings institutions, and the banks have objected. There are three possible ways of dealing with that distortion. One is to achieve absolute fiscal neutrality, as my hon. Friend the Member for Ludlow said, either by abolishing the composite rate or by extending it to all bodies that pay interest on accounts, including the National Savings ordinary account.
I shall deal with each point briefly in turn, because the decision to resist these amendments depends on an overall view of the balance of advantage and disadvantage in the composite rate scheme. At the time of the Budget my right hon. Friend the Chancellor said that the composite rate for building societies had worked well for the past 90 years, but that it had advantages and disadvantages. He made no secret of that. The disadvantage was that a minority of depositors who are below the income tax thresholds still pay tax at the composite rate. However, that has not stopped many of them using building societies because of the competitive rates offered. The advantage of the scheme is its extreme simplicity, especially for the taxpayer. Most taxpayers are spared the bother of paying tax on interest through PAYE or individual assessment. I must tell the hon. Member for St. Helens, South (Mr. Bermingham) that that is the case only for standard rate taxpayers. There is a separate assessment for those who pay higher rates.

Equally, the Revenue is spared the need to recruit many extra staff to collect the tax due on interest paid without deduction.
If one took one of the routes to absolute fiscal neutrality, the proposal to abolish the composite rate would not just involve recruiting 1,000 extra staff for the Inland Revenue to cover the banks. The Revenue would need about 2,000 extra people to deal with tax on building society accounts and, bearing in mind the fact that interest-bearing current accounts are spreading rapidly in the banking system, it is likely that up to another 3,000 staff would be required as that process continued. We are talking about 6,000 or more extra Inland Revenue staff, which would mean tens of millions of pounds more in direct staff wages and overheads. That solution is absolutely out of the question on grounds of public manpower and administrative costs.
That route would also make life much more complicated for many taxpayers. The National Consumer Council said that the composite rate was attractive to many consumers because they had no subsequent dealings with the tax authorities. The scheme has been convenient in practice. I do not pose this argument, as some hon. Members have suggested, on the ground of dealing with the problem of evasion. That would be a marginal consequence of introducing the composite rate across the board.
If we deduct tax at source, we ensure that the full amount of tax is collected, and we shall probably include some tax which, for one reason or another, may not be collected now. However, that is not the main objective of the scheme; it is simply a useful consequence in terms of compliance with the tax.
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Another route to achieving absolute fiscal neutrality would be to take the composite rate across the board, but that would leave no avenue for non-taxpayers to obtain gross interest. My hon. Friend the Member for Enfield, North (Mr. Eggar) suggested that that would not be attractive to the Committee, and I agree with him entirely. I am sure that the Committee would not want non-taxpayers to be deprived of all possible means of obtaining gross interest.

Mr. Cockeram: Is the Minister seriously propounding the philosophy that the Conservative Government will drive the small saver from the private sector into the public sector?

Mr. Stewart: I am not developing a philosophy. I am merely saying what, in practical terms, I believe the Government should provide and what the great majority of hon. Members would support: that we should not follow a course which denied to non-taxpayers the opportunity of obtaining gross interest.

Sir William Clark: We are not concerned with the philosophy. The effect of this clause will be to force the small, non-taxpaying saver into the public sector—the National Savings bank. It will become the only instrument whereby a small saver can obtain tax-free interest. My hon. Friend the Member for Ludlow (Mr. Cockeram) is asking whether, since this is the effect of the clause, we are changing Conservative philosophy.

Mr. Stewart: I can only repeat that I was not basing this argument on philosophy. I was explaining to the Committee why the Government came to the conclusion that they did in the Budget.

Sir Geoffrey Finsberg: Will my hon. Friend give way?

Mr. Stewart: If I am not allowed to deploy my arguments, my speech will take a very long time.

Sir Geoffrey Finsberg: We cannot leave the matter there, even if my hon. Friend wishes to deploy his arguments, because he has failed to answer two specific questions put to him by four Conservative Members. Does he accept that the consequence of the proposal will be to benefit only the state sector? If the philosophy of the Government is to encourage the private sector, how can he equate that with the clause? I apologise to him if he was about to answer those questions. If he was not, I shall have to speak again and try to force him to answer those simple questions.

Mr. Stewart: My hon. Friend was kind enough to say earlier that he believed that I would deal with the debate courteously, and I shall do my best. However, it is difficult to deal with these points if I can get out only one sentence at a time. I would now like to discuss whether National Savings accounts should be exempted from these arrangements, because I know that the matter has greatly worried several of my hon. Friends.

Mr. Campbell-Savours: To save time, will the Economic Secretary simply answer yes to his hon. Friends?

Mr. Stewart: Many points have been put to me from different angles, and it is only fair, after such an important debate, that I should try to respond to them all.
It has been suggested that the proposal to exempt National Savings accounts gives them an unfair advantage. I must point out first that they are not competing in the same way with other deposit takers on business on both sides of the balance sheet. They are competing for deposits but they are not competing for lending. There is a difference between the separation that exists under the present system between banks and building societies and the difference between banks and building societies on the one hand and National Savings on the other.

Mr. Bermingham: Perhaps the Minister will answer the question, as he has already been asked to do by my hon. Friend the Member for Workington (Mr. Campbell-Savours) and then explain how the non-taxpayer who seeks to deposit £100 or £200 cannot be said to have an attraction towards the state sector because no tax will be deducted and he will get the interest gross. What did the Minister mean when he said that there are other features in regard to lenders? Is he suggesting that the non-taxpayer will be attracted back to the bank because he wants a loan?

Mr. Stewart: I shall try to be as courteous to Opposition Members as I am to my hon. Friends. It is difficult. I am endeavouring to explain why the Government have put forward these proposals, and the Committee is not showing much enthusiasm to hear the case that I am trying to put. It would be helpful if I were to be allowed to complete my case. When I have explained the arguments that should be deployed I shall give way again.
Dealing still with National Savings, the point has been raised by several hon. Members that the Government would be able to compete unfairly against institutions in the private sector. My hon. Friend the Member for Croydon, South (Sir W. Clark) and others spoke of whether this would have an effect on the liquidity of banks because it would draw deposits away from them. My answer is that the National Savings target for the next year will be the same as the target for the last two years, that is, £3,000 million.
We have also made a change in regard to the accounts of INVAC and the income bonds of National Savings to reduce the ceiling from £200,000 to £50,000 so that above that level they do not compete with deposits in banks. National Savings will not be attempting to raise extra money from depositors as a result of the introduction of the composite rate. There may be a change in the disposition of the bodies with whom individual depositors place their funds, but it is not a part of our purpose to use this exemption for National Savings to take money away from banks and building societies. Indeed, by holding the target at £3,000 million, which is the same as in the past, we are not even taking into account the increase that would be available because of inflation and expansion of the economy. Therefore, there will be an extra amount of deposits available to building societies and banks if that target is held steady.

Sir William Clark: I was not arguing about the target of the National Savings movement. What I was arguing was that if banks are lending money to industry and their deposits decrease, they will still have to maintain their liquidity ratio, and this has nothing to do with the target. Has the Treasury taken this into account? That is all I ask.

Mr. Stewart: With respect to my hon. Friend, that is the point that I was answering. If the flow of money into National Savings is maintained at the same level, then, by definition, the banks and building societies are not being deprived of deposits. So the availability of deposits for building societies and banks will increase, while the target for National Savings is not being increased.
The Department of National Savings has for some time had a tax-free interest band, which is now £70 on the ordinary account. That has generally been welcomed in the House and in previous Finance Bill Committees, but it does not extend to the private sector. Therefore, there is already discrimination in National Savings which the House has found it right to accept in the past. I believe that hon. Members would be right to accept similar arrangements in future, but I do not think that we should widen arrangements of that kind. They would be much more difficult to control and would call into question the merits of having such exemptions.
In regard to the payment of interest gross as opposed to the tax-free band, in existing circumstances there is a distinction because stocks bought through the National Savings register pay interest gross whereas interest on debentures, company securities and so on is paid after deduction of tax. There are elements of discrimination in the National Savings mechanism already and it is appropriate that we should not deprive non-taxpayers of the means of obtaining a source of gross interest.
We have therefore felt it right to deal with the composite rate problem by extending the composite rate to banks but not to National Savings facilities. This will


even out competition between banks and building societies. There is already a rapid increase in interest-bearing accounts in banks. This may well accelerate that increase. Of course, there will be some inconvenience and cost to the banks in introducing this arrangement but I should like to point out something announced at the time of the Budget but perhaps not fully appreciated: arrangements under schedule 20 to the Finance Act 1972, which governs the offset of interest paid under deduction of tax against interest received under deduction of tax from banks and other institutions, will apply to composite rate tax. This will accelerate the advantage to the banking sector by an amount which it is hard to estimate precisely without knowing the details of their business, but which could be of the order of £70 million which will be useful in dealing with the costs of establishing composite rates.
The question is not a matter of philosophy, as my hon. Friends have suggested. One could argue anything on the basis of philosophy and on the basis of what is practically sensible under the circumstances. I put forward an argument which I think is practically sensible under the circumstances for extending the composite rate to the banks, but not to National Savings. Whether or not the composite rate is deducted is not the deciding factor in where depositors place their money.
In regard to recent levels of interest rates the banks have been quoting 5·25 per cent. on deposit, which is a gross rate without deduction of tax, and building societies have been quoting 6·25 per cent. which is a net rate after deduction of composite rate tax. The National Savings ordinary account pays 6 per cent. and INVAC 9·25 per cent. Therefore, it is not surprising that some money has moved between banks and National Savings or between building societies and banks on other grounds. Many depositors put their money with banks because of the other facilities that they can obtain by holding deposits in the banks rather than in other institutions.
The rate of interest that is received by the depositor can hardly be the only or, indeed, the major determining factor in where funds are placed. To that extent much of the comment during the debate has suggested that the impact of the introduction of the composite rate will be much more severe and damaging than I believe it is likely to be.
The banks will want to compete in this market and will do so either by the services that they provide or by the rates of interest that they pay, which may not be the same after the introduction of the composite rate. I must resist the temptation to join the advice bureaux of hon. Members who were suggesting where depositors should place their money. Factors other than the composite rate will enter depositors' considerations.
I sympathise with the points raised by those who have taken part in the debate, but I cannot accept that their arguments outweigh the undoubted advantages of the composite rate system.

Sir William Clark: Hon. Members on both sides of the House are always worried about how much concessions sought in amendments will cost the Exchequer. My hon. Friend has said that the Treasury's best estimate of the cost of the amendment is £350 million.
Let us go through the calculation slowly. There are 3 million deposit accounts. The amendment of my hon.

Friend the Member for Ludlow (Mr. Cockeram) would allow exemption for the first £70 of interest on each of those 3 million accounts. I make that £210 million. If we do not take off the composite rate, it will cost the Exchequer 25 per cent. of £210 million, which is £52 million. At the standard rate, it will cost the Exchequer £70 million.
We should be given the correct figures. The estimate of £350 million seems to have been plucked out of the air. I cannot see how that would be the cost to the Exchequer when the total interest relieved if each account has a £70 exemption—and some do not—would be only £210 million a year, subject to tax of £52 million. That is very different from £350 million.
I do not think that many of my hon. Friends can understand why there is a difference between the National Savings bank and other banks. The Economic Secretary said that the ordinary banks are different because they lend money to people to buy machinery and so on and that the National Savings bank does not lend. But that is not true; the National Savings bank lends to the Government. There is no difference between the institutions that we are talking about.
I hope that my hon. Friend will at least clear up the difference between my calculation of the interest at £52 million and the Treasury's estimate of £350 million.

Mr. Stewart: I explained that quite a while ago in response to an intervention by the hon. Member for Stoke-on-Trent, Central (Mr. Fisher), who made a similar point. The cost of the amendment is substantially the cost of relieving from tax the taxpaying depositors and not the depositors who pay no tax.

Mr. Terry Davis: It seems that some Conservative Members do not follow the Economic Secretary's calculation. The hon. Member for Croydon, South (Sir W. Clark) referred to 3 million deposit accounts as if that was the total number of accounts, and he did his calculations on that basis. However, there are 3 million non-taxpayers, but many more deposit accounts, all of which would benefit from the £70 exemption.

Mr. Stewart: If the hon. Gentleman has put that more clearly than I did earlier, I am grateful to him. That is, indeed, the reason. We are talking about taxpaying depositors with the banks and the building societies and the figures that I gave apply both to building societies and to banks.
I do not want to develop what I said earlier about competition with National Savings, but we are trying to reduce discrimination and distortion in competition, and in the case of National Savings, competition is only on the deposit-taking side and not on the commercial lending side.

Mr. Bermingham: Will the Economic Secretary make it absolutely clear that he is saying that the effect of the composite rate will be to cause a number of non-taxpayers to switch their accounts to the National Savings Bank, which has only one borrower—the Government? The bank has a target of £3 billion to raise this year and if people switch their accounts the Government will presumably not be making so many calls. Is that what the hon. Gentleman is saying?

Mr. Stewart: I am not sure that I follow the hon. Gentleman's argument. The National Savings target will


remain the same and, therefore, the Government will not be seeking to raise more money. If money comes to National Savings accounts because of the introduction of the composite rate—as, no doubt, some will, though it is difficult to quantify it—that will reduce the extent to which National Savings will seek to raise money from other sources. I mentioned the reduction in the limits on other accounts, which will serve partly to offset that.
I have covered most of the points raised in the debate and I ask the Committee to reject the amendments.

Mr. Cockeram: I find the Economic Secretary's reply unsatisfactory politically. I do not believe that he has produced any arguments in favour of special treatment for the public sector and the taxing of the private sector and he has not produced adequate arguments to support the taxation of people who would not otherwise be taxed. That is contrary to all the other themes of the Budget, including the raising of personal allowances.
I also feel that my hon. Friend has not produced satisfactory technical answers to justify the basis of the Government's proposal. I shall continue to make representations to him and my right hon. Friend the Chancellor of the Exchequer, and I reserve the right to raise the matter again on Report. I am sorry that I cannot support my hon. Friend.

Sir Geoffrey Finsberg: I hope that my hon. Friend the Economic Secretary will accept that he has not answered two questions. I desperately wish to help him to help us, but he does not seem willing to do so. He said that he cannot be wholly accurate, which I accept, and he quoted a figure of £300 million to £350 million, but he did not answer the point by my hon. Friend the Member for Croydon, South (Sir W. Clark) who asked by how much that £300 million or £350 million would be reduced by people switching from the joint stock banks or the building societies to the National Savings bank. If the Economic Secretary has been over the matter with his usual care, the Treasury must have had figures to put before Ministers.
The second question that my hon. Friend has not answered requires only a simple yes or no reply. Does he accept that the result of what he intends will be to encourage the state sector against the private sector? The question is as simple as that.

Mr. Terry Davis: The Economic Secretary made a brave and honest speech, but I am sorry that he called in aid of his arguments the report of the Wilson committee and the views of the National Consumer Council. I regret his references to the views of those bodies, because he turned them round and implied that they had advocated what the Government are doing. That is not correct.
The hon. Gentleman said that those bodies had criticised the distinction between the banks and the building societies and he used them to support his case. That was unfair because although it is true that those bodies condemned the distinction between banks and building societies, they urged that the composite rate on building societies should be scrapped—the opposite of what the Government are doing. They wanted equality, but equality of a different sort. They did not want to put the composite rate of tax on bank accounts; they wanted to abolish it for building societies. It is a question of levelling up or levelling down.
The Economic Secretary made a brave and honest speech, but his approach was rigid and inflexible. He

would not accept my amendment to amendment No. 60, but I was not convinced by his arguments. He said that the exemption of £70 was not suitable for indexation, but he gave no reason for that view. I shall not press him on that point now. I shall wait to read in Hansard what he said.
I was very disappointed when the Economic Secretary refused to accept, or even to consider, amendment No. 60. He said that the cost of the amendment would be £300 million to £350 million a year. However, he was unable to answer question put to him by his hon. Friends, especially the hon. Member for Hampstead and Highgate (Sir G. Finsberg), the hon. Member for Croydon, South (Sir W. Clark) and the hon. Member for Ludlow (Mr. Cockeram) about how many people will switch to National Savings bank accounts as a result of the Government's provisions. I came to the conclusion that the Minister did not know the answer. I am sorry that he was not able to give us clear information. Apart from cost, his only other argument was that the amendment would complicate the administration of the composite rate. That argument, too, was not convincing.
The question of cost has impressed some hon. Members. The Economic Secretary said that the cost of accepting amendment No. 60 would be between £300 million and £350 million a year. The Government, in this Bill, propose to abolish the investment income surcharge. That tax was paid only by those who receive more than £7,000 in interest from their investments. That tax raised £360 million for the Revenue in a full year.
We can see what the priorities of the Government are. They have abolished the investment income surcharge and given £360 million to people who have very high investment incomes, but they are imposing a composite rate of tax on those whose incomes are so low that they will pay no income tax. The Government apparently cannot afford amendment No. 60. They can afford to give £360 million to those who get £7,000 in interest on their investment, but those who pay no income tax are to be brought into the tax net.

Sir William Clark: The Government's figure of £350 million is based on 3 million accounts. There are 5 million deposit accounts and, taking the first £70, we are talking about interest of £350 million. However, only 25 per cent. of that £350 million is a cost to the Exchequer, and the building societies, which are not included in the amendment, are not affected.

Mr. Davis: I accept the latter point, although I accept the Minister's logic when he said he would have to extend it to both institutions. He assumed that he would have to tidy up the legislation to provide for the building societies. The hon. Member for Croydon, South (Sir W. Clark) may not agree with the Minister, but I do.
The hon. Member for Croydon, South is mistaken in saying that the Economic Secretary would say that the total interest would be £350 million. The Minister said that the cost of the amendment would be £350 million. I see the Minister nodding his head in agreement.
The Government say that they cannot afford to lose £350 million in revenue through accepting amendment No. 60, which would provide for at least £70 to be tax-free for small savers as well as big savers. Three million people who do not pay tax would benefit from the amendment. However, the Government can afford to abolish the investment income surcharge at a cost of £360 million.
I would prefer the adoption of amendment No. 47, together with my amendment (a), but amendment No. 60 has been called first and we shall support it.

Mr. Campbell-Savours: Wholly inaccurate figures are being bandied about the Chamber. Can my hon. Friend extract the correct figure from the Minister? We believe that figure is less than £100 million. The Minister says that it is more than £300 million. The House should be told tonight what the true figure is.

Mr. Davis: I am sorry to disappoint my hon. Friend, but if Conservative Members cannot extract better figures from the Minister I doubt whether I shall be able to do so.

Mr. Campbell-Savours: This is a matter of importance. If the Minister is unable to give us an accurate figure, the House should adjourn pending the presentation of accurate information. It is irresponsible for a Minister to use figures during a debate while knowing that he is deliberately misleading the House.

Mr. Davis: I should prefer to finish our consideration of the clause rather than to adjourn. We shall hope to explore the major point on clause stand part.
I object to clause 27 even if it is amended, but if amendment No. 60 was made it would be a better clause. Many hon. Gentlemen are concerned about the effects on competition between the different institutions, and especially the effect on the banks. The Opposition are concerned about the effects on small savers, particularly those who do not have to pay income tax at present. Nevertheless, we shall make common cause with Conservative Members and do our best to impose amendment No. 60 on the Government.

Mr. Cockeram: In view of the unsatisfactory nature of the Minister's reply I intend to pursue the matter further with my right hon. Friend the Chancellor of the Exchequer and with my colleagues. I shall consider putting down further amendments or new clauses on Report. I beg to ask leave to withdraw the amendment.

Hon. Members: No.

The Chairman: Does the hon. Member for Birmingham, Hodge Hill (Mr. Davis) wish formally to move amendment (a)?

Mr. Davis: In the interest of unity and harmony with Government Members, I do not propose to move it.

Question put, That the amendment be made:—

The Committee divided: Ayes 22, Noes 122.

Division No. 278]
[8.48 pm


AYES


Banks, Tony (Newham NW)
Howells, Geraint


Barron, Kevin
Hughes, Simon (Southwark)


Bell, Stuart
Kennedy, Charles


Bermingham, Gerald
Kilfedder, James A.


Campbell-Savours, Dale
Kirkwood, Archibald


Cocks, Rt Hon M. (Bristol S.)
McDonald, Dr Oonagh


Cohen, Harry
McWilliam, John


Cook, Frank (Stockton North)
Skinner, Dennis


Davis, Terry (B'ham, H'ge H'l)
Smith, C.(isl'ton S &amp; F'bury)


Dobson, Frank



Fisher, Mark
Tellers for the Ayes:


Gould, Bryan
Mr. Frank Haynes and


Hamilton, W. W. (Central Fife)
Mr. Austin Mitchell.





NOES


Alison, Rt Hon Michael
Hunter, Andrew


Amess, David
Jackson, Robert


Ashby, David
Jessel, Toby


Baker, Nicholas (N Dorset)
Jones, Gwilym (Cardiff N)


Baldry, Anthony
Jones, Robert (W Herts)


Bellingham, Henry
Kershaw, Sir Anthony


Benyon, William
Key, Robert


Biggs-Davison, Sir John
Knight, Gregory (Derby N)


Boscawen, Hon Robert
Lang, Ian


Bowden, Gerald (Dulwich)
Latham, Michael


Bright, Graham
Lawler, Geoffrey


Brinton, Tim
Lennox-Boyd, Hon Mark


Brown, M. (Brigg &amp; Cl'thpes)
Lester, Jim


Buck, Sir Antony
Lyell, Nicholas


Butterfill, John
Macfarlane, Neil


Carlisle, Kenneth (Lincoln)
MacKay, Andrew (Berkshire)


Chapman, Sydney
Mather, Carol


Chope, Christopher
Miller, Hal (B'grove)


Clarke, Rt Hon K. (Rushcliffe)
Mills, Sir Peter (West Devon)


Clegg, Sir Walter
Moore, John


Conway, Derek
Murphy, Christopher


Coombs, Simon
Neubert, Michael


Cope, John
Powell, William (Corby)


Couchman, James
Rathbone, Tim


Cranborne, Viscount
Rees, Rt Hon Peter (Dover)


Currie, Mrs Edwina
Renton, Tim


Dunn, Robert
Rhodes James, Robert


Durant, Tony
Roe, Mrs Marion


Eggar, Tim
Rossi, Sir Hugh


Evennett, David
Ryder, Richard


Fallon, Michael
Sackville, Hon Thomas


Forman, Nigel
Sainsbury, Hon Timothy


Forth, Eric
Shelton, William (Streatham)


Fraser, Peter (Angus East)
Sims, Roger


Freeman, Roger
Smith, Tim (Beaconsfield)


Galley, Roy
Spencer, Derek


Goodhart, Sir Philip
Spicer, Jim (W Dorset)


Goodlad, Alastair
Squire, Robin


Gow, Ian
Stanbrook, Ivor


Gower, Sir Raymond
Stevens, Martin (Fulham)


Gregory, Conal
Stewart, Ian (N Hertf'dshire)


Griffiths, E. (By St Edm'ds)
Stradling Thomas, J.


Griffiths, Peter (Portsm'th N)
Sumberg, David


Grist, Ian
Thatcher, Rt Hon Mrs M.


Ground, Patrick
Thomas, Rt Hon Peter


Gummer, John Selwyn
Thompson, Donald (Calder V)


Hamilton, Neil (Tatton)
Thompson, Patrick (N'ich N)


Harris, David
Tracey, Richard


Hawkins, Sir Paul (SW N'folk)
Twinn, Dr Ian


Hayes, J.
van Straubenzee, Sir W.


Hayward, Robert
Viggers, Peter


Heathcoat-Amory, David
Waddington, David


Heddle, John
Wakeham, Rt Hon John


Hickmet, Richard
Walden, George


Hogg, Hon Douglas (Gr'th'm)
Wardle, C. (Bexhill)


Holt, Richard
Whitfield, John


Hooson, Tom
Whitney, Raymond


Howard, Michael
Wiggin, Jerry


Howarth, Alan (Stratf'd-on-A)
Wolfson, Mark


Howell, Rt Hon D. (G'ldford)



Howell, Ralph (N Norfolk)
Tellers for the Noes:


Hubbard-Miles, Peter
Mr. John Major and


Hunt, David (Wirral)
Mr. Archie Hamilton.

Question accordingly negatived.

Question proposed, That the clause stand part of the Bill.

Mr. Terry Davis: I thought that some other amendments had been selected for debate on clause 27.

The Chairman: No.

Mr. Davis: The list of amendments that I obtained in the Lobby, Mr. Walker, shows that you selected amendments Nos. 61, 62 and 63 to be debated together—

The Chairman: Order. Those are to schedule 8, not to clause 27.

9 pm

Mr. Davis: I beg your pardon, Mr. Walker.
The Government have said that their aim with the clause and the schedule is to pursue fiscal neutrality. One way to achieve that would be to abolish the composite rate on building society accounts, as has been urged by the banks, the Wilson committee and the National Consumer Council. That proposal has been rejected by the Economic Secretary because, he says, it will involve more civil servants, and he has suggested that instead we should introduce a new system of a composite rate of tax on interest on a whole range of accounts, which we shall discuss in our debate on the schedule.
The Government say that their proposal is neutral, but by neutral they mean that there is no effect on revenue. The clause is not neutral in its effect on people. It will redistribute the tax burden from taxpayers to non-taxpayers. That means that someone with a low income on which he is not liable for tax will become liable for tax on the interest that he receives on some of his savings—it depends on the form of savings. Someone whose income is as low as £30 a week could become liable for tax on the interest that he receives from savings, whereas a taxpayer on £300 a week will see his tax burden reduced. That is the Government's idea of neutrality.
The Trustee Savings bank has calculated that 20 per cent. of its customers are non-taxpayers, in that they do not pay income tax. Those people will now become liable for tax on the interest that they receive on their accounts in the Trustee Savings bank. The banks have calculated that 3 million people will now become liable for tax on interest, when they have not been liable for tax before.
I can give some examples of what this will mean. Let us consider the case of a retired man in his sixties who was self-employed and has sold a small business and invested the money, or someone who has been made redundant and has invested his redundancy payment, in one of these accounts. I have a letter from one such person. He explains that he is 55 years old and has been unemployed for two years. His total savings, accrued during 31 years of employment, amount to £20,000 and he has increased them with his redundancy payment. He receives no benefits from the social security system and has no earnings, because he is redundant. His sole source of income is the interest of £2,000, before tax, on his savings. As he says in his letter,
I exist (rather than live) on my interest topped up with steadily declining capital.
That man would not have been liable to income tax, because he is married, but he will now pay tax on the interest that he receives.
There are many people in that situation, many of them in their 60s, who are waiting until they become entitled to their retirement pension, and they rely on the married man's tax allowance of £3,155 to avoid liability for any income tax.
The Government say that national savings are an alternative, but there is an important difference. National savings accounts do not provide a monthly income. They provide interest, which is paid on a six-monthly or annual basis. It is not possible for someone who has invested his redundancy payment or savings to obtain a regular monthly income from that form of investment. Therefore,

people have to put their savings into other forms of investment, such as the Trustees Savings bank and other savings institutions where they can get the interest more frequently. One gentleman to whom I have spoken arranged for the bank to pay him the interest monthly so that he could have a monthly income. That is an important distinction between savings institutions and National Savings accounts.
Under the Government's proposals, 3 million non-taxpayers will be charged tax. They include not only the kind of people whom I have described, who have suffered from the effects of Government policies which have led to an increase in unemployment. They include those who have previously not been liable for tax on their small savings. They include people on supplementary benefit, pensioners and married couples whose income is less than £60 a week. The changes will benefit a similar couple on £350 a week, because they will be paying a lower rate of tax as a result of the composite calculation. I have already drawn attention to the contrast between the Government's policy on that and their policy on the investment income surcharge. That change benefits people whose income is £700 a week, and costs £360 million.
The Government are attacking small savers, particularly children, and we shall deal with this aspect in an amendment to the schedule. Not only children will be affected; so will their grandparents. That is the effect of the composite rate of tax. The Government have described the Budget as a savers' Budget. It is not. It may be an investors' Budget, but it certainly is not a savers' Budget. The Government have also described it as an incentive Budget. Where is the incentive to children to learn the habit of thrift, and where is the incentive for pensioners who have made sacrifices to save? We all know pensioners who have small amounts of money invested in various savings accounts which is intended for their burial. It is accrued and jealously guarded for that purpose. It is extremely important to those elderly people to have that money available, especially with the present death grant. For the first time the Government will be taxing the interest that these people receive on their small savings. Other old-age pensioners who save weekly or monthly to pay electricity, gas and rates bills and who receive small amounts of interest will now be taxed.
The Government are reducing the taxes paid by people who have capital of more than £70,000 and are introducing a tax for people who have saved a few hundred pounds who have not previously been liable to pay any tax at all on their income. We object to the clause in its entirety. In his reply to a previous amendment the Economic Secretary could only defend the Government's measures as being simple for taxpayers. It may be simplicity that he is aiming for, but the clause is expensive for non-taxpayers. It is being introduced at the expense of people who are not liable for income tax, and the Opposition oppose it.

Mr. Kirkwood: I feel obliged to make a short contribution to the debate. I came to the debate with a fairly open mind, and I have listened carefully to the arguments, but the Treasury Bench has come off worse by a long chalk in the argument.
I am not well up in the economic theory of the balance of advantage as between building societies, banks and the rest. It may be that at another time and in another place the Economic Secretary will be able to persuade me of the merits of the theology of that argument. It may be that the


banks and building societies are not on a par under the present arrangements. From what I have heard tonight, one way to redress the balance would be to go in exactly the opposite direction from the way that has been chosen. The Economic Secretary has not chosen to do so and so we are faced with the position where the small depositors, who are the main depositors in banks such as the Trustee Savings bank in constituencies such as my own—the elderly and the young—will be clobbered by the way that they are treated for tax purposes. I am disappointed that the Minister did not even say that he would consider exemptions for institutions such as the Trustee Savings bank, the joint stock banks or banks north of the border. If he had done that, I should have listened with more sympathy to his arguments.
If the Government do not intend to countenance the suggestions that I have mentioned, they are guilty of pushing depositors towards investing in the National Savings bank. That is astonishing for a Conservative Administration. It is unexpected. I should never have believed that I would hear a Treasury Minister advocate such action.
I shall study what the Minister said about the amendments. I did not understand half of what he said. That may be due to my ignorance, but it may be because of the confusion which crept into the discussion on the amendments. I shall read Hansard carefully and return to some of the arguments on Report.
I have listened to the debate for a number of hours and I cannot ask my hon. Friends to support the Government if a Division is called. I shall advise my hon. Friends to vote against the clause because of the way in which the Government are treating small depositors and the effect that the proposal will have on the Trustee Savings bank. We heard a quote from a letter—

The Chairman: Order. I am reluctant to interrupt the hon. Gentleman, but we seem to be trespassing on amendments Nos. 61, 62 and 63 which refer to specific deposit takers. I hope that we will not trespass too far on amendments which lie ahead.

Mr. Kirkwood: I am grateful for that advice, Mr. Walker. I was saying that the Government have not convinced me that the arrangements will give the necessary protection to small depositors. For that reason, the Government cannot expect support from these Benches. I hope that they will come back on Report with some remedies.

Mr. Ian Stewart: I dealt with the arguments thoroughly when replying to the amendments to the clause, so I do not think that I need respond to the hon. Member for Hodge Hill (Mr. Davis). The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) did not contribute to the earlier debate. I am sorry that I did not persuade him and others of the merits of the case.
I have always said that there are advantages and disadvantages in the composite rate scheme. The disadvantage is that non-taxpayers who deposit their money in the big banks and building societies will be subject to the composite rate. They do not have to do that. Therefore, it is not right to say that they are being clobbered. They have the opportunity to use the National Savings bank. It is right to keep that avenue open for them.

Mr. Campbell-Savours: Such people may have that opportunity, but under that scheme they can withdraw money only every six months. How can the Minister expect people who want a monthly income to invest in that way?

Mr. Stewart: Arrangements for National Savings vary greatly between the different instruments and accounts. The hon. Gentleman raises an interesting point, which we shall consider. We are always anxious that National Savings should meet the needs of those who put their savings into them.
On the general point, I repeat to the hon. Members for Roxburgh and Berwickshire and for Hodge Hill that there are many factors besides the composite rate which determine where depositors place their money, and I believe that in the proposals as they stand the advantages greatly outweigh the disadvantages.

Mr. Terry Davis: Is the hon. Gentleman giving an assurance that he will consider the possibility of interest being credited to National Savings accounts on a monthly basis? I should be grateful for that assurance.

Mr. Stewart: That is not a matter for the Finance Bill. As I said—and this embraces the point that the hon. Gentleman made—we are always open to suggestions, and I heard what he said.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 123, Noes 18.

Division No. 279]
[9.15 pm


AYES


Alison, Rt Hon Michael
Gow, Ian


Amess, David
Gower, Sir Raymond


Ashby, David
Gregory, Conal


Baker, Nicholas (N Dorset)
Griffiths, E. (B'y St Edm'ds)


Baldry, Anthony
Griffiths, Peter (Portsm'th N)


Bellingham, Henry
Grist, Ian


Benyon, William
Ground, Patrick


Biggs-Davison, Sir John
Gummer, John Selwyn


Boscawen, Hon Robert
Hamilton, Neil (Tatton)


Bowden, Gerald (Dulwich)
Harris, David


Bright, Graham
Hawkins, Sir Paul (SW N'folk)


Brinton, Tim
Hayes, J.


Brown, M. (Brigg &amp; Cl'thpes)
Hayward, Robert


Buck, Sir Antony
Heathcoat-Amory, David


Butterfill, John
Heddle, John


Carlisle, Kenneth (Lincoln)
Hickmet, Richard


Chapman, Sydney
Hogg, Hon Douglas (Gr'th'm)


Chope, Christopher
Holt, Richard


Clarke, Rt Hon K. (Rushcliffe)
Hooson, Tom


Clegg, Sir Walter
Howard, Michael


Conway, Derek
Howarth, Alan (Stratf'd-on-A)


Coombs, Simon
Howell, Rt Hon D. (G'ldford)


Cope, John
Howell, Ralph (N Norfolk)


Couchman, James
Hunt, David (Wirral)


Cranborne, Viscount
Hunter, Andrew


Currie, Mrs Edwina
Jackson, Robert


Dunn, Robert
Jessel, Toby


Durant, Tony
Jones, Gwilym (Cardiff N)


Eggar, Tim
Jones. Robert (W Herts)


Evennett, David
Key, Robert


Fallon, Michael
Knight, Gregory (Derby N)


Farr, John
Lang, Ian


Finsberg, Sir Geoffrey
Latham, Michael


Forman, Nigel
Lawler, Geoffrey


Forth, Eric
Lennox-Boyd, Hon Mark


Fraser, Peter (Angus East)
Lester, Jim


Freeman, Roger
Lyell, Nicholas


Galley, Roy
Macfarlane, Neil


Goodhart, Sir Philip
MacKay, Andrew (Berkshire)


Goodlad, Alastair
Major, John






Mather, Carol
Stanbrook, Ivor


Miller, Hal (B'grove)
Stevens, Martin (Fulham)


Mills, Sir Peter (West Devon)
Stewart, Ian (N Hertf'dshire)


Molyneaux, Rt Hon James
Stradling Thomas, J.


Moore, John
Sumberg, David


Murphy, Christopher
Thatcher, Rt Hon Mrs M.


Neubert, Michael
Thomas, Rt Hon Peter


Newton, Tony
Thompson, Patrick (N'ich N)


Powell, William (Corby)
Tracey, Richard


Rathbone, Tim
Twinn, Dr Ian


Rees, Rt Hon Peter (Dover)
van Straubenzee, Sir W.


Renton, Tim
Viggers, Peter


Rhodes James, Robert
Waddington, David


Roe, Mrs Marion
Walden, George


Ryder, Richard
Wardle, C. (Bexhill)


Sackville, Hon Thomas
Whitfield, John


Sainsbury, Hon Timothy
Whitney, Raymond


Shelton, William (Streatham)
Wiggin, Jerry


Sims, Roger
Wolfson, Mark 


Smith, Tim (Beaconsfield)



Soames, Hon Nicholas
Tellers for the Ayes:


Spencer, Derek
Mr. Donald Thompson and


Spicer, Jim (W Dorset)
Mr. Archie Hamilton.


Squire, Robin





NOES


Banks, Tony (Newham NW)
Howells, Geraint


Bell, Stuart
Hughes, Simon (Southwark)


Bermingham, Gerald
Kennedy, Charles


Campbell-Savours, Dale
Kilfedder, James A.


Cocks, Rt Hon M. (Bristol S.)
Kirkwood, Archibald


Cohen, Harry
McDonald, Dr Oonagh


Cook, Frank (Stockton North)
McWilliam, John


Davis, Terry (B'ham, H'ge H'l)
Skinner, Dennis


Dobson, Frank



Fisher, Mark
Tellers for the Noes:


Gould, Bryan
Mr. Austin Mitchell and


Hamilton, W. W. (Central Fife)
Mr. Frank Haynes.

Question accordingly agreed to.

Clause 27 ordered to stand part of the Bill.

Orders of the Day — Schedule 8

INTEREST PAID ON DEPOSITS WITH BANKS ETC.

Mr. Terry Davis: I beg to move amendment No. 61, in page 135, leave out line 24.

The Chairman: With this, it will be convenient to consider the following amendments: No. 62, in page 135, leave out lines 25 and 26.
No. 63, in page 135, leave out lines 27 and 28.

Mr. Davis: The purpose of these probing amendments is to discover why the Government selected certain savings institutions. Amendment No. 61 proposes to remove from the schedule the reference to the Post Office. I understand that the only Post Office savings medium covered by the schedule is the Girobank. How did the Government decide to include the Girobank in their list of savings institutions on which the composite rate of tax on interest would be levied? They have decided to levy that rate on accounts with the Girobank but not those with the National Savings bank. What is the reason for that?
This matter was raised by some Conservative Members in a previous debate. A philosophical argument seemed to rage on the Conservative Benches about the encouragement given by the Bill to the publicly owned National Savings bank. Conservative Members argued that this was discrimination in favour of publicly owned savings institutions and against privately owned savings institutions. The Girobank is publicly owned also and is included in the list of savings institutions.
The Economic Secretary said that the National Savings bank differed from the other institutions because it did not lend as well as take deposits. I may be mistaken—if I am wrong, I am sure that the Economic Secretary will tell me in his reply—but I do not believe that the Girobank lends to people. It was pointed out that the National Savings bank is in the business of lending to the Government. The amendment refers specifically to the Girobank. We should like to know the basis of the Government's choice of institutions.
Amendment No. 62 involves the Trustee Savings bank. We should like the Government to justify the inclusion of that bank in the list. The Trustee Savings bank is important because many people graduate from using National Savings bank current or ordinary accounts to Trustee Savings bank accounts. Many children progress in that way as they grow up, eventually opening current accounts with the clearing banks. The Trustee Savings bank plays an important role in the economic life of the country and the education of our children.
Amendment No. 63 deals with banks under the Savings Bank (Scotland) Act 1819. As I understand it, those banks are regarded as trustee savings banks in Scotland. It is instructive to look at the long title of that Act. Its words shed light on the Government's intentions in putting a tax on the interest paid on the small accounts in the trustee savings banks and Scottish banks. The Act explains that it was introduced
for the safe custody and increase of small savings, belonging to the industrious classes of His Majesty's subjects.
That may be old-fashioned language, but we all understand the intent.
9.30 pm
We are discussing accounts that comprise the small savings of those who do not have a great deal of money. They are not investors; they are savers—people who have put a little by each week from their wages. People have been doing that for almost 200 years. For the first time the Government will tax the small amount of interest paid on their savings. The Government must justify the inclusion of the Scottish equivalent of the trustee savings banks.
It is not clear from paragraph 2(1)(F)) whether retail co-operative societies are included in the category of licensed deposit takers or whether their share capital constitutes relevant deposits. I should be grateful if the Economic Secretary would clarify that point. I hope that he will assure us that Co-operative Society share capital will not be affected by the schedule.
I declare an interest as a member of the Co-operative Society. That is not exceptional as it has 9 million members throughout the country. On the latest available statistics, its members contributed about £180 million to the shares of their societies, an average of £20 per member. While societies draw their membership from the whole of the community, most of it is of a working-class character, often housewives of families on low incomes, skilled or unskilled manual workers and senior citizens. Many of its members are unemployed and pay little or no tax. Many of them are in the evening of their lives and the small amounts of savings in their local societies have been built up laboriously over a lifetime and used either to supplement their living standards or to provide a reserve against the cost of their funerals.
It would be intolerable if a proposal that is of doubtful wisdom in the broadest sense were to be applied against


the interests of those on low incomes with a negligible tax liability. I trust that the Economic Secretary will make a clear and specific statement that co-operative society capital will not be affected by the proposed composite arrangements.

Mr. Ian Stewart: The co-operatives would not be deposit takers and, therefore, would not be covered by the proposals.
The hon. Gentleman asked me to explain the basis for including the bodies mentioned in the amendments within the proposed arrangements. The 1819 Act savings banks are treated as savings banks for many purposes and are being included generally within the concept of savings banks. The proposals are not directed specifically at them. If those banks were set up for the industrious, and the industrious are those who work hard, presumably the banks would include many taxpayers among their savers.
The hon. Gentleman was right to say that the Post Office is included because of the Girobank. That bank does make commercial loans and it is included for that reason. National Savings banks are deposit takers, but do not compete in the lending markets with banks and building societies. The Girobank competes in only a limited way at present, but that practice is steadily increasing. Both the Girobank and the Trustee Savings banks are developing their commercial business and seeking in many ways — and it is a welcome development—to become more like other banks and licensed deposit takers in their lending activities. Therefore, it is right that they should all be treated in the same way.

Mr. Terry Davis: I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the schedule be the eighth schedule to the Bill.

Mr. Terry Davis: I am disappointed that the hon. Member for Croydon, South (Sir. W. Clark) has not moved amendment No. 48, which would have provided some relief for children. As I understand the amendment, it would have allowed children to open small savings accounts not liable to income tax. I should not want to associate myself with any loopholes that would enable the children of wealthy families to avoid paying tax on their savings and investments. The amendment would have meant that such children paid income tax in the same way as they do now, because they would be liable to higher rates, and even to the standard rate of income tax. Unfortunately, however, we cannot debate that as the hon. Gentleman has not moved his amendment.
The Opposition object to the new tax that will be levied on the interest received by small savers, many of whom are not at present liable to pay tax. We are told that the banks have calculated that 3 million people who do not pay income tax at present will become liable to pay it because of the Government's measure.
Throughout this evening's debate it has been clear that the Government are anxious to put banks, Trustee Savings banks and the Girobank on the same basis as building societies. Leaving aside the point that they could have done it in a different way, by scrapping the composite rate of tax on building societies—I accept that that rate of

tax has existed for many years under Labour and Conservative Governments—I emphasise that if the Government's aim is fiscal neutrality and to put building societies and other institutions on the same basis, they could have done so by scrapping the composite rate of tax. In that way, those who are not liable to income tax would have been able to invest in building societies without their money being taxed willy-nilly by the Chancellor.
The Government, however, have turned their face against that option and have introduced clause 27 and schedule 8 to put their fiscal policy into effect. The schedule lists many savings institutions in which people have placed small savings without having them raided by the Chancellor. The policy of taxing the small amount of interest received by those who are so poor that they are not liable to income tax is totally abhorrent to the Opposition. We shall, therefore, vote against the schedule, as we voted against the clause.

Question put, That this schedule be the eighth schedule to the Bill:—

The Committee divided: Ayes 121, Noes 17.

Division No. 280]
[9.38 pm


AYES


Alison, Rt Hon Michael
Hayes, J.


Amess, David
Hayward, Robert


Ashby, David
Heathcoat-Amory, David


Baker, Nicholas (N Dorset)
Heddle, John


Baldry, Anthony
Hickmet, Richard


Bellingham, Henry
Holt, Richard


Biggs-Davison, Sir John
Hooson, Tom


Boscawen, Hon Robert
Howard, Michael


Bowden, Gerald (Dulwich)
Howarth, Alan (Stratf'd-on-A)


Bright, Graham
Howell, Ralph (N Norfolk)


Brinton, Tim
Hunt, David (Wirral)


Brown, M. (Brigg &amp; Cl'thpes)
Hunter, Andrew


Buck, Sir Antony
Jackson, Robert


Butterfill, John
Jessel, Toby


Carlisle, Kenneth (Lincoln)
Jones, Gwilym (Cardiff N)


Chapman, Sydney
Jones, Robert (W Herts)


Chope, Christopher
Key, Robert


Clarke, Rt Hon K. (Rushcliffe)
Kilfedder, James A.


Clegg, Sir Walter
Knight, Gregory (Derby N)


Conway, Derek
Latham, Michael


Coombs, Simon
Lawler, Geoffrey


Cope, John
Lennox-Boyd, Hon Mark


Couchman, James
Lester, Jim


Cranborne, Viscount
Lyell, Nicholas


Currie, Mrs Edwina
Macfarlane, Neil


Dunn, Robert
MacKay, Andrew (Berkshire)


Durant, Tony
Major, John


Eggar, Tim
Mather, Carol


Evennett, David
Miller, Hal (B'grove)


Fallon, Michael
Mills, Sir Peter (West Devon)


Farr, John
Molyneaux, Rt Hon James


Finsberg, Sir Geoffrey
Moore, John


Forman, Nigel
Murphy, Christopher


Forth, Eric
Neubert, Michael


Fraser, Peter (Angus East)
Newton, Tony


Freeman, Roger
Powell, William (Corby)


Galley, Roy
Rathbone, Tim


Goodhart, Sir Philip
Rees, Rt Hon Peter (Dover)


Goodlad, Alastair
Renton, Tim


Gow, Ian
Rhodes James, Robert


Gower, Sir Raymond
Roe, Mrs Marion


Greenway, Harry
Ryder, Richard


Gregory, Conal
Sackville, Hon Thomas


Griffiths, Peter (Portsm'th N)
Sainsbury, Hon Timothy


Grist, Ian
Shelton, William (Streatham)


Ground, Patrick
Sims, Roger


Gummer, John Selwyn
Smith, Tim (Beaconsfield)


Hamilton, Hon A. (Epsom)
Soames, Hon Nicholas


Hamilton, Neil (Tatton)
Spencer, Derek


Harris, David
Spicer, Jim (W Dorset)


Hawkins, Sir Paul (SW N'folk)
Squire, Robin






Stanbrook, Ivor
Viggers, Peter


Stevens, Martin (Fulham)
Waddington, David


Stewart, Ian (N Hertf'dshire)
Walden, George


Stradling Thomas, J.
Wardle, C. (Bexhill)


Sumberg, David
Whitfield, John


Thatcher, Rt Hon Mrs M.
Whitney, Raymond


Thomas, Rt Hon Peter
Wiggin, Jerry


Thompson, Donald (Calder V)
Wolfson, Mark


Thompson, Patrick (N'ich N)



Tracey, Richard
Tellers for the Ayes:


Twinn, Dr Ian
Mr. Douglas Hogg and


van Straubenzee, Sir W.
Mr. Ian Lang.




NOES


Banks, Tony (Newham NW)
Haynes, Frank


Bell, Stuart
Howells, Geraint


Bermingham, Gerald
Hughes, Simon (Southwark)


Campbell-Savours, Dale
Kirkwood, Archibald


Cocks, Rt Hon M. (Bristol S.)
McDonald, Dr Oonagh


Cohen, Harry
Skinner, Dennis


Cook, Frank (Stockton North)
Davis, Terry (B'ham, H'ge H'l)



Tellers for the Noes:


Fisher, Mark
Mr. Austin Mitchell and


Gould, Bryan
Mr. John McWilliam.


Hamilton, W. W. (Central Fife)

Question accordingly agreed to.

Schedule 8 agreed to.

Orders of the Day — Clause 98

REDUCTION OF TAX

Mr. William Powell: I beg to move amendment No. 55, in page 87, leave out lines 3 to 26 and insert—


FIRST TABLE


Portion of Value
Rate of Tax


Lower limit
Upper limit
Per cent.


£
£



0
64,000
Nil


64,000

30




SECOND TABLE


Portion of Value
Rate of Tax


Lower limit
Upper limit
Per cent.


£
£



0
64,000
Nil


64,000

15.'.


I begin by declaring an interest, in that I act as adviser to the Unquoted Companies Group.
In his Budget speech on 13 March my right hon. Friend the Chancellor said:
Unnecessarily high rates of tax discourage enterprise and risk taking. This is true of the capital taxes, just as it is of the corporation and income taxes. It is a matter of particular concern to those involved in running unquoted family businesses. The highest rates of capital transfer tax are far too high and badly out of line with comparable rates abroad. I propose therefore, in addition to statutory indexation, to reduce the highest rate of capital transfer tax from 75 per cent. to 60 per cent. — 
[Official Report, 13 March 1984; Vol. 56, c. 299.]
I welcome the reduction which my right hon. Friend announced in his Budget speech. The effect of the amendment is further to reduce capital transfer tax from 60 to 30 per cent. The amendment aims to tackle two problems in one. First, the indexation of capital transfer tax rates under the Finance (No. 2) Act 1983 has ignored the substantial increases caused by inflation between 1974 and 1982—

Mr. Campbell-Savours: Will the hon. Gentleman give way?

Mr. Powell: —in the value of assets subject to tax.

Mr. Campbell-Savours: Will the hon. Gentleman give way?

Mr. Powell: The retail price index has increased by a factor more than 300 per cent. since 1974—

Mr. Campbell-Savours: On a point of order, Mr. Armstrong. Is it in order for the hon. Member for Corby (Mr. Powell) to come to this Chamber and read his speech, especially since it is such an appalling one?

The First Deputy Chairman of Ways and Means (Mr. Ernest Armstrong): It is quite in order for hon. Members to refer to notes.

Mr. Campbell-Savours: But he is reading his speech, Mr. Armstrong.

The Chairman: Order. The hon. Gentleman has just started his speech, and some hon. Members make more references to notes than do others.

Mr. Powell: The retail price index has increased by a factor of more than 300 per cent. since 1974, so in real terms the tax on death is heavier over the range of £75,000 to £2·42 million than it was in 1974.
However, there is no logical reason for levying a tax on death at graduated rates. The suggested new tables in my amendment would exempt completely smaller estates up to the present ceiling proposed by the Government, and would introduce one rate of tax on all estates—30 per cent. on death and 50 per cent. on lifetime gifts. That is not as satisfactory as it would be were the tax on lifetime gifts abolished, which I hope my right hon. Friends will do in due course, but which I do not urge upon them tonight.
The yield from capital transfer tax on lifetime transfers, including the tax on discretionary trusts, was £30 million in 1981–82, which is the latest year for which figures are available. That figure compares with a peak of £32·8 million in 1978–79. Since capital transfer tax is collected in arrears, the figure for 1981–82 will have been little affected by the reduction in the rate of tax on lifetime transfers from 75 to 50 per cent., which was announced in 1981. In 1984 the top rate was further reduced to 30 per cent.
There are no published figures to enable an up-to-date estimate to be made of the yield of capital transfer tax on lifetime transfers. However, the current figure should be substantially less than £38 million; let us say £25 million. The amendment would reduce the yield of capital transfer tax on lifetime transfers by nil at the bottom of the scale and by half at the top. Let us call it an average of 25 per cent. A quarter of £25 million gives a full-year cost of some £6 million. That is about £2 million in the first year.
The total yield of capital transfer tax is forecast for 1984–85 to be £680 million. After the deduction of the £25 million which I have just analysed on lifetime transfers, the yield on death is some £655 million. Therefore, the cost of my amendment on the same basis as for lifetime gifts is a quarter of £655 million—that is, £164 million in a full year and £66 million in 1984–85. The total cost on death and lifetime transfers is therefore £170 million in a full year and £68 million in the first year.
As the Chancellor said in his Budget statement, the highest rates of capital transfer tax are far too high and are


badly out of line with comparable rates abroad. Of course, the provisions of the Finance Bill will reduce the maximum rate from 75 to 60 per cent., but this contrasts with a maximum rate in Scandinavia for tax on transfers to lineal descendants of 39 per cent., in the rest of the European Community minus ourselves of 27·22 per cent., and in other western European non-EC countries of 20·2 per cent. This contrasts with a rate of 20 per cent. in France and 35 per cent. in Germany.

Mr. Fisher: Is the hon. Gentleman aware of the proportion of total taxes, including social security contributions, that is paid as taxes on capital in this country? If he is, he will be aware that only Ireland, Luxembourg and Germany pay a lower proportion of tax than people in this country and that everybody else in the Common Market pays a great deal more.

Mr. Powell: The hon. Gentleman is entitled to his opinion. I simply dispute his facts.

Mr. Bell: rose—

Mr. Powell: No; I have just given way and I want to develop my argument on why it is necessary that there should be the change that I propose.
Experience shows that capital transfer tax is often a major and insurmountable barrier to the expansion of unquoted companies. The reason for this is simple. Capital transfer tax is a graduated tax and the cost of funding it from personal resources rises rapidly to prohibitive levels as the business grows. If the principal motivation is to keep the firm as a family company, capital transfer tax can be an absolute barrier to expansion that would otherwise be desirable commercially. Family firms desire to maintain control and to pass a secure and sound business to the next generation. Capital transfer tax therefore acts as a business disincentive tax. It acts as a direct disincentive to growth, in that beyond a certain size further expansion implies eventually a larger capital tax liability than can be met other than by selling the company and terminating its existence as an independent organisation.
The fiscal destruction of larger unquoted companies is doubly undesirable. First, by virtually every relevant criterion of efficiency, unquoted companies out-perform quoted companies. This applies to profit ratios, to the growth of net assets and to other profit and growth rates, all of which shows that unquoted companies are at a decided advantage over quoted companies. Yet the fiscal bias against unquoted companies relative to quoted companies, as characterised in the present structure of capital transfer tax, tends to lower the general efficiency of British industry.
Unquoted companies are relatively efficient because they are compelled to be so by their more limited financial base. They have to bear their own losses and they cannot afford cross-subsidisation or empire building. That characteristic also assists growth, since unquoted companies, in contrast to quoted companies, are not bound by market forces to distribute dividends and they therefore plough back a greater part of their revenue into investment, which tends to increase their capital transfer tax burden. That is absurd.
10 pm
The damage done by capital transfer tax on unquoted companies is social as well as economic.Unquoted

companies represent independent centres of economic power and, except to the extent that they are inhibited by capital transfer tax, they take a long view of the future, often extending over several generations.
By contrast, quoted companies are inevitably more influenced by short-term considerations, particularly the profit figures of last year and next year. Moreover, their decision-takers, because they are disposing of other people's money and not their own, are often more averse to risk than are decision-takers in unquoted companies. The safest course for salaried decision-takers is generally to keep in step with their counterparts in other companies.
The course that is often more profitable in the long term is to go against that trend and, therefore, although the principle of safety in numbers operating in the quoted sector tends to exaggerate cyclical variations between boom and slump, the devolution of decision-taking to locally based owner-managers, with a long-term view, has the opposite effect.
Many unquoted companies follow a policy of no redundancies, which can be justifiable commercially for an owner-managed company with a long time scale, even when it is not right for a quoted company subject to shorter-term pressures.
The depth and duration of the present recession has been increased by the dismantling of so many well-established unquoted family companies in recent decades because of the threat of estate duty and capital transfer tax. The economic recovery would be more rapid and enduring if the abolition of capital transfer tax enabled established and successful unquoted companies to make their full contribution once again.
Similarly, unquoted companies are dispersed all over the country and, unlike the head offices of quoted companies, are not concentrated in a small number of large cities. The existence of numerous independent centres—

Mr. Campbell-Savours: Will the hon. Gentleman give way?

Mr. Powell: Yes, at the end of the sentence. The existence of numerous independent centres of economic power and decision-taking helps to maintain activity away from the major centres of industrial production and the more prosperous areas of the country.

Mr. Campbell-Savours: Instead of saying that he would give way at the end of the sentence, the hon. Gentleman should have said that he would give way at the end of the page. Did he consult his constituents in Corby about his contribution to the debate? How many of his constituents will gain from the reduction of the CTT liability of those who have more than £80,000? Did the hon. Genleman ask his 55,000 constituents? If so, how many will benefit from his proposal—10 or 20?

Mr. Powell: We would not expect the hon. Gentleman to pursue a sensible argument. My constituents and the hon. Gentleman's constituents will benefit from all steps taken to strengthen new companies that are growing. Companies are growing in my constituency particularly rapidly and my amendment will assist that process. I shall show how that relates to a number of initiatives taken by the Government in the past three or four years. However, CTT and estate duty have prevented unquoted companies from making their maximum contribution to keeping up


the level of activity in the peripheral regions, including the constituency of the hon. Member for Workington (Mr. Campbell-Savours). Once an independent company is sold or taken over, it becomes merely the branch or subsidiary of a large concern. Instead of being relatively immune to eonomic storms by reason of the long-term horizon of its owner-managers, it becomes exceptionally vulnerable because the new owner will treat it as a prime candidate for retrenchment if business turns down.
Capital transfer tax on unquoted companies has made a significant contribution to the problems of the disparity between the peripheral areas and the centre. Although my arguments are focused on unquoted companies, they go wider. Other assets as well as unquoted company shares are better held personally than by institutions. For example, it is also desirable for directors and managers of quoted companies to have substantial holdings of their companies' shares. This amendment will at last reduce the rate schedule of CTT, which has never been indexed for the more-than-threefold increase in prices between 1974 and 1982 and which rises to two and a half times the average top rate in the rest of Europe on transfers to beneficiaries in the direct line.
The amendment will still leave our own rate higher than those that exist in the rest of the European Community, but it will be a major benefit to a vital sector of our economy and will assist in the process that we have begun of regenerating British industry. In the past three or four years there have been the business start-up scheme, the loan guarantee scheme and the business expansion scheme, which have enabled a large number of new companies to he formed. This reform in CTT will enable these new companies to grow and prosper down the generations, and it will be a major step to ensuring that they are able to take their place alongside existing well-established companies. I commend the amendment to the Committee..

Mr. Peter Rees: The Committee will agree that my hon. Friend the Member for Corby (Mr. Powell) moved his amendment with great lucidity and that it raises a point of considerable importance.
On the more technical aspects, I must tell the Committee that the amendment would not fundamentally simplify the tax, because it would still be necessary to calculate the complex reliefs. A compelling argument, to my mind, is that the cost would be considerable. The Chancellor and I have to bear that in mind. For 1984–85 the cost would be £55 million, and in a full year it would be £175 million. There are slight discrepancies between my figures and those of my hon. Friend, but we can iron them out later if necessary. The figures are broadly similar.
My right hon. Friend the Chancellor of the Exchequer made it clear that the Budget has to be neutral. A cost of this nature could not be absorbed. However, I welcome my hon. Friend's commendation of the relief that we have introduced in clause 98. We may debate the scope of the clause on clause stand part.
My hon. Friend developed an attractive argument about the unquoted company and I should be the first to recognise the contribution that such companies make to the economy.
My hon. Friend was pressed by the hon. Member for Workington (Mr. Campbell-Savours). The hon. Gentleman must recognise that, in Corby and elsewhere, unquoted companies are making their contribution to the provision of jobs. Notwithstanding their rather odd contribution to job creation in the form of the national income surcharge, I know that the Opposition are preoccupied—as we are—with the need to provide jobs.
I hope that my hon. Friend will feel that justice has been done to his powerful case. In view of the considerable cost of his amendment in tax terms, I hope that he will not feel disposed to press it to a Division.

Mr. William Powell: In view of the considerable step that my right hon. Friend the Chancellor has been able to take in the Budget to reduce the maximum rate from 75 to 60 per cent., I do not think that it would be right to press the amendment, and I therefore beg to ask leave to withdraw it.
Amendment, by leave, withdrawn.

Finance (No. 2) Bill

Question proposed, That the clause stand part of the Bill.

Dr. McDonald: We listened with amusement to the hon. Member for Corby (Mr. Powell), who, having got nothing from the Chief Secretary except a few kind words, immediately abandoned the companies about which he grieved so much, leaving them to suffer the burden of taxation which, in his view, will wipe them out, thus adding to the never-ending number of companies that have gone into liquidation under the present Government.
Clause 98 proposes yet more reductions in the rate of capital transfer tax and the indexation of the thresholds at which the tax is payable. It will abolish the three highest rates of capital transfer tax applying to transfers of assets after death, abolish the three highest rates of capital transfer tax applying to lifetime transfers, and reduce tax on other lifetime transfers of assets from 35 per cent. to 30 per cent. and from 30 per cent. to 27 per cent. at what appears to be a modest cost of £49 million. I shall return to that apparent modesty as this is simply yet another reduction in the tax.
The Chancellor has talked of the unnecessarily high rates of tax that discourage enterprise and risk taking. The Government have provided no empirical evidence for that. There is no evidence to suggest that the tax has prevented the formation of companies or the continuation of successful ones. It is the Government's conduct of economic policy, the pursuit of high interest rates in the initial part of their first term of office and the lack of demand that have destroyed the companies that have floundered. Those are the factors that have led to the highest rate of company liquidation that we have experienced for many years. If the Government were really worried about the health of companies, they would be changing their economic policies rather than fiddling around with tax changes to give even more benefits to the better-off.
Even the present rates of capital transfer tax allow large amounts of capital to be transferred. The £60,000 that can now be transferred without being liable to tax is to be increased to £64,000. Because the exemption is renewed every 10 years, a married couple can arrange for as much as £384,000 to be transferred in a 30-year period without being liable to tax. It is an ineffective tax which was regarded as so much so a couple of years ago that an article entitled "Capital Transfer Tax: An Obituary" appeared in Fiscal Studies. The article was premature, as it followed the 1981 Budget. The patient is dying, but dying very slowly. It was not quite dead then, but it was pretty ineffective.
10.15 pm
The article then gave an example. The Chancellor's reduction in capital transfer tax in the 1981 Budget meant that almost all personally owned businesses had low tax rates. Even on assets worth as much as £4 million, the effective tax rate was less than 12 per cent. once in a generation or about 0·4 per cent. in a year. Those were the estimates in the article. I see that the hon. Member for Corby has left his place, no doubt to sympathise with all the suffering companies that he has so abruptly deserted. He could hardly claim that an effective tax rate at that level was any great suffering to companies.
More recently, the Treasury and Civil Service Sub-Committee, in a report called "The Structure of Personal Income Taxation and Income Support" which had all-party support, had this to say about capital transfer tax:
Capital transfer tax contained general exemptions, including the ability to transfer wealth freely between spouses and a reduction in liability on private business on agricultural land. As the Financial Times noted following the March 1982 Budget, all of these concessions plus the raising of the threshold has meant that CTT has declined as a proportion of GNP and that all but the very wealthiest can almost escape tax entirely. For even 1982–83, the absolute amount of tax is expected to fall. CTT raises little more revenue, even in cash terms, than the estate duties which it replaced. It represented only 1·2 per cent. of all Inland Revenue receipts, little more than an eighth as much as that raised before the last war. Proposals in the March 1982 Budget to index the tax for inflation will result in a further decline in future revenue from that tax.
The Select Committee examined a wide range of evidence, and the report showed clearly that little of the tax was collected.
After all, the tax is easily avoided—this was one of the glaring omissions from the speech of the hon. Member for Corby. This is shown by the endless financial advice given in the financial sections of newspapers and in Accountancy Age. I have a couple of articles from that paper that will serve as an illustration. One of them suggests that one should take the avoidance so seriously that one plans from the cradle to the grave. To make that clear, it has a series of photographs, ending with a picture of a graveyard, when presumably one will have lost interest in capital transfer tax.
In considering gifts to children or the younger generation, the article said:
where possible gifts should be made of assets likely to appreciate in value. Woodlands, for example, offer a significant planning tool.
The article then goes on to mention one or two other examples, as though there are many people who can seriously give some woodland to their children as a way to avoid capital transfer tax and as though that is a serious part of life for the majority of people. Avoiding this tax is an indulgence for the wealthy and the ways to avoid it are simple.
The advice is summed up at the beginning of the article where it says:
Your estate will be healthy if you keep making the gifts.
Another major article refers to how to inherit the earth the efficient way. There is plenty of advice and there are tax avoidance schemes of all sorts, which have proliferated under this Government. There are ways to make sure that whatever rates are proposed in the Finance Bill can be avoided. The reductions that the Chief Secretary and the Government have so kindly given to their friends are meaningless for many of the people who, on paper, look as though they should be paying capital transfer tax but who in fact pay very little.

Mr. Tim Smith: It really will not do for the hon. Lady to say that tax avoidance schemes have proliferated under this Government when she knows, first, that the higher the rates of tax the more people endeavour to avoid paying it—it is inevitable, it is human nature—and, secondly, because of the recent decision of the House of Lords in the case of Furniss v. Dawson which outlawed a wide range of tax avoidance schemes.

Dr. McDonald: The hon. Gentleman's place is in offering yet more advice. As he and Treasury Ministers know well, as soon as one tax avoidance scheme is


stamped on it is replaced by another. If one is serious about collecting such a tax, one is constantly trying to close one loophole after another.
The hon. Gentleman shrugs the matter off by saying that it is just human nature that people should try to avoid paying higher rates of tax. I should love to hear what he has to say about alleged cases of social security fraud. Does he just shrug his shoulders then or does he endorse everything that the Government have done to increase the number of inspectors who chase after social security fraud but not those who chase after income tax fraud?

Mr. Smith: Does not the hon. Lady understand the distinction between tax evasion and tax avoidance? Social security fraud is akin to tax evasion, not tax avoidance. I was not talking about fraud, nor was she earlier.

Dr. McDonald: I certainly was talking about tax avoidance. The hon. Gentleman finds it difficult to understand the simple point that I was making. He shrugs his shoulders and says that it is just human nature for people to try to avoid paying tax. He certainly would not shrug his shoulders if it were a social security matter. If he did, I should like to see it happening. I know that it would be a rare occurrence among Conservative Members. I do not mean to imply that Labour Members condone social security fraud any more than we would condone tax fraud. Our attitude to both is the same. I wish that Conservative Members were as energetic in chasing tax fraud and in closing tax avoidance loopholes. The hon. Gentleman need not wriggle in his seat. I carefully made the distinction between the two.
The total revenue from capital transfer tax in 1981 was £479 million. In subsequent years the figure ranges from £500 million in 1982 to an estimated £680 million in 1984. Of course, in terms of the total tax take from income tax, VAT, and so on, that is a tiny proportion. The Government are bent on reducing both the amount and the proportion. Since they first started changing the rates and thresholds for capital transfer tax in 1980—not in 1979—including this year's proposal, the Government have spent £350 million in four years to reduce what is a light tax indeed and a small proportion of total revenue. When that is set against demands for money in other directions, whether for schools, hospitals, the reversal of the housing benefit rules, an increase in the age allowance and so on—admittedly I have taken the figure over a four-year period—nevertheless £350 million is exactly the amount of money that the Government constantly declare that they cannot find to fund projects, allowances or benefits which would help the majority of people in Britain and not a tiny minority who are already pretty well off. It is no wonder that capital taxes contribute only 1·3p in the pound—the figure for 1984–85—compared with 3·9p in the pound in 1973–74. We are talking about a tiny amount.

Mr. Nicholas Lyell (Mid-Bedfordshire): Will the hon. Lady take the opportunity to clarify Labour's position? Would she greatly increase the tax or abolish it? Would she introduce a wealth tax and nationalise land?

Dr. McDonald: It is amazing that Government Back-Bench Members are even better at dreaming up manifestos for us than Ministers. We are not committed to nationalising land.

Mr. Bell: A figleaf—but there is not much to cover.

Dr. McDonald: My hon. Friend the Member for Middlesbrough (Mr. Bell) tempts me to say that it is a figleaf which is larger than required. Perhaps I should not be tempted.
I have answered the first part of the question posed by the hon. and learned Member for Mid-Bedfordshire (Mr. Lyell). My answer to the second part is that we are in the process of reviewing the tax structure. With what is left of the capital transfer tax by the time that we take office—I hope in October 1987—it will not be worth raising the rates or adjusting the thresholds. Capital taxation must be rethought in a more effective way. That is an answer to the hon. Gentleman. More will be forthcoming in the years to come. The hon. Gentleman must try to make what use he can of that.
The Government's claim is that the highest rates are badly out of line with comparable rates abroad. The hon. Member for Corby, who is still out of the Chamber, made plenty of that—[HON. MEMBERS: "Where is he—reading his speech?"] I should think that the hon. Member is trying to understand his speech. What confuses the hon. Member and many other Government Members is that they tend to think of the rates rather than the corrected amounts and therefore regard them as a proportion of taxes including social security.
The taxes on capital in Belgium, France, the Netherlands, Denmark and Greece are higher in proportion to total taxes than in the United Kingdom. Neither the. Chancellor's nor the hon. Member for Corby's claims were correct. Their assessment of international comparisons is about as reliable as the comparisons with EEC figures that were discussed earlier this week.
A long time ago, in 1975, the Prime Minister, then an Opposition spokesman, gave a commitment on capital transfer tax. Complaining about the then Chancellor, she said that he had brought in a capital transfer tax which, unless it was repealed in time, would cripple business and farms. It did neither. It was left to the Conservatives to cripple business and, as a result of agreements with the EEC, to cripple some farms. This Government have destroyed more companies than ever the Labour Government did, whatever Conservatives now say about the kind of taxation that we then introduced.
10.30 pm
The Conservatives have decided to tackle capital transfer tax in a different way. At first I thought, having looked back at what the present Prime Minister said in 1975, that this was another example of a Tory broken promise. But it is nothing of the sort. Instead, they have gone in for killing off CTT slowly; it is, for this tax, death by a thousand cuts, and the Government have altered the rates and turned a blind eye to tax avoidance schemes. It was said in a recent Financial Times article:
The last three years, however, have seen the emergence of off-the-peg CTT avoidance schemes which have been mass-marketed, mainly by life assurance companies, and have so far attracted an estimated £1·5 billion. As for the Conservative Government, not only has it expanded the reliefs from CTT; it has also turned a blind eye to many loopholes. In some cases, it appears deliberately to have created loopholes — for example, by repealing rather than beefing up the clause which deemed interest-free loans to be a partial gift. According to barrister Robert Venables, a tax specialist, the Government have been very clever. Their original plan to repeal the tax would have looked too much like favouring rich. Instead, they have allowed most of their supporters to avoid its harmful effects by careful planning.


That sums up precisely what the Government have done with capital transfer tax. They have made up for the loss of revenue by vastly increasing the tax burden on wage earners, and particularly low wage earners, many of whom now bear the brunt of the £17 billion increase in taxation which the Conservatives have imposed since 1979.
There is no way out for most wage earners. They pay their tax through the PAYE system. They cannot indulge in tax avoidance schemes or hire accountants to find a way out of paying their tax. That is the prerogative open to many who are better off, and the Government have indulged this kind of tax avoidance, thus enabling the wealthy to reduce their tax burden, and in some cases to pay hardly any tax at all. No wonder such people are laughing all the way to the bank, for life is good for them under the Conservatives.
Tax inspectors have been reduced in number and it is more difficult for them to carry out their work of checking the accounts of companies and individuals. Meanwhile, the Government have stepped up their attack on social security fraud. They are determined to harass working-class people, impose burdens of taxation on them, deny them benefits through legislation and ensure that not one of them escapes. If they were equally concerned to close the loopholes in capital transfer tax, they would have our support for the provisions that they wish to include in the Bill. If that were their concern, the unity to which hon. Members have referred this evening could be restored.
However, the clause will favour once again the wealthy in our society. It will reduce the tax burden for them and we cannot give our support to such a measure. We are here to protect the interests of the low paid. We are here to protect the interests of the average wage earner. We are not here to protect the interests of the wealthy and to enable them to avoid tax. It is not our purpose to continue to reduce the burden of taxation on them at the expense of the low and average wage earner.

Mr. Bell: I appreciated and enjoyed the speech of my hon. Friend the Member for Thurrock (Dr. McDonald), notwithstanding the fact that it was laced with certain interventions of levity from Conservative Members. We would expect them to introduce levity during a debate on the proposed reduction of capital transfer tax rates. I think that my hon. Friend did justice to our cause and we are grateful to her for stating it so clearly.
My hon. Friend the Member for Workington (Mr. Campbell-Savours) has mentioned the hon. Member for Corby (Mr. Powell). I wished to be charitable at this time of night and it was my intention not to mention the hon. Gentleman, but having used notes copiously and having declared an interest, he thought that it was fitting for him to withdraw his amendment after a few words from the Chief Secretary to the Treasury. He reminded me of a worthy Member of this place, Aneurin Bevan, a great socialist, who once said, "He who fights and runs away lives to run another day." The hon. Member for Corby will do exactly that for he left the Chamber when we began to debate whether the clause should remain part of the Bill. One consolation for my hon. Friends is that the hon. Gentleman will be a member of the Standing Committee which will consider the Bill. We look forward to many lengthy sessions running until two o'clock or three o'clock

in the morning on the complex issues raised by the Bill. We look forward also to the hon. Gentleman's interventions.
My hon. Friend the Member for Thurrock referred to a statement that was made by a former spokesman of the Conservative party who is now the Prime Minister. The right hon. Lady criticised CTT in 1975 and said that a future Conservative Government would abolish it. That cry was heard throughout the life of the previous Labour Government. It was heard from the inception of the tax. The Foreign Secretary, who became the Chancellor of the Exchequer in 1979, claimed on 27 October 1976 that the mix of capital taxes discouraged the creation of individual and national wealth. The right hon. and learned Gentleman was Chancellor for four years, but he did not rid the tax system of CTT. He had as little courage in that respect as Chancellor as that which he has shown in other areas.
I wish to make no criticism of the Foreign Secretary, but CTT was criticised by Conservative Members, yet when they formed a Government in 1979—they have now been in office for five years, a fact of which we have been reminded forcefully today—they did not abolish it. It remains on the statute book after five years of Conservative Government.
We should be grateful to my hon. Friend the Member for Thurrock for stating so clearly, concisely and forcefully at the end of her remarks the beliefs and tenets of the Labour party. It is proud to believe in a fundamental and irreversible shift in the balance of wealth and power in favour of workers and their families. It has been suggested by Conservative Members that we would substitute tax on capital by the nationalisation of land—move from the sublime to the ridiculous and back again—but it is a fact that we favour labour as opposed to capital. We have never made any bones about that.
When in office, we introduced a capital gains tax, capital transfer tax, development gains tax, stamp duty and an investment income surcharge. We are not ashamed of our record in government. We do not seek to wriggle away from it. The Chief Secretary might wish to blame us for our record and to suggest that we were misguided. He should not feel that we regret that we imposed the taxes on capital and sought to advance the cause and interests of labour. When we are returned to office, as I believe we shall be, we will again shift the emphasis away from capital in favour of labour. We make no bones about that aim.
I sought to intervene when the hon. Member for Corby made a statement in response to an intervention of my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher). My hon. Friend referred to the levels of taxes, including social security contributions, in other European countries. The hon. Member for Corby said that that was a matter of opinion. I wished to intervene to say that it was a matter not of opinion but of facts. Those facts are published by Her Majesty's Stationery Office in "Economic Trends" for December 1983, which clearly shows in table 4 that the proportion of total tax, including social contributions paid from taxes on capital in 1981, were as follows: Greece, 1·4 per cent., Belgium, 0·9 per cent., France, 0·8 per cent., the Netherlands, 0·5 per cent., and Denmark, 0·4 per cent. That is not anecdotal evidence or opinion, but facts. My hon. Friend the Member for Stoke-on-Trent, Central sought to draw those facts to the attention of the Committee.
one of the major justifications the committee has heard for the reduction in the capital transfer tax and the review of the transfer was that unnecessarily high rates of tax discourage enterprise and risk taking. That claim, like many of the Chancellor's claims, is not supported by any evidence, including empirical evidence. The capital transfer tax operates only against very high levels of transfers. Transfers of capital of less than £60,000 attract no liability. Because the exemption is renewable every 10 years, a married couple could arrange for as much as £384,000 to be transferred during a 30-year period without incurring any capital transfer tax liability. These cuts in capital transfer tax will continue the overall decline in capital taxes, which will contribute only 1·3p in the pound collected by Inland Revenue in 1984–85, compared with 3–9p in the pound in 1973–74. Those facts are from the "Financial Statement and Budget Report" for 1984–1985 and "Financial Statistics" for June 1983.
Part of the Government's justification for the cuts in capital transfer tax is that high interest rates are badly out of line with comparable rates abroad. We have clearly shown tonight that that is not the case.
Labour Members are proud to assert again our defence of labour against the interests of capital. I support fully the statements of my hon. Friend the Member for Thurrock. We will always be opposed to any measures to alleviate the tax on capital. As my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) said on 14 March 1984 during the Budget resolution and economic debate:
If there is money  to reduce the rate of capital transfer tax from 75 to 60 per cent., how can the chancellor justify a cut of £185 million in housing benefit?"—[Official Report, 14 March 1984; Vol. 56, c. 415.]
We are no more likely to get the answer to that question tonight than my right hon. Friend was on that occasion.

Mr. Campbell-savours: I shall speak only briefly, as I hope to speak on Report. I wish to comment on the speech of the hon. Member for Corby (Mr. Powell), who read his brief with care. I must tell him that there are many hon. Members who, over the years, have repeatedly risen in the annual ritual of debates. We have witnessed the festering, sordid underbelly of British Conservatism in action, demanding further reductions in capital transfer tax to feed their festering greed—which everyone knows is wrong when, every year, the amount of money made available by the state to those in need is cut. We are tired, sick and fed-up of the process. It is an embarrassment to the House of Commons and it should be an ambarrassment to the Government. It puts a shame on every hon. Member who supports this nonsense—this sordid, disgraceful annual exercise.
The Minister may shake his head, but he knows that if the House was televised—and I have always voted against that, despite the strong pressure from my hon. Friend the Member for Great Grimsby (Mr. Mitchell)—the Minister would not dare to stand at the Dispatch Box and make the statement that he is about to make. He knows that the British people—and I would like his attention—would take exception to the way that the Government annually hand out this sordid money to their even more sordid friends.

Mr. Austin Mitchell: I shall be brief. I wish to add to the chorus of protest from the Opposition. We will vote

against the motion that the clause stand part of the Bill because it is a further stage in the long process of whittling away the capital taxation that is an essential part of any reasonable, fair tax system. The Government are taking the teeth out of capital transfer tax.
It is a basic principle not only of a Socialist society but of any fair tax system that there should be substantial taxation of capital. Capital is well able to bear its share of the common weal. A few welts on capital in the common weal is no more than social justice. Wealth is powerful enough to bear its share.
The process of taxing capital leads to an essential part of a dynamic, healthy and vigorously competitive society—the shake-up of capital. Much of the sluggishness of British capital has been caused by firms descending from father to idiot sons without innovation or new ideas, and gradually wasting away as families withdraw from management, live on capital and run down their businesses. That has especially happened in the wool business of the West Riding, where I was brought up. The Opposition want to avoid that sluggish society. We want a competitive society in that there should be a turnaround, a shake-up and new blood.
The chorus of protest that developed in the late 1970s about the burden of income tax was due to the inadequate share borne by capital. We have been good at taxing income—perhaps too good—but very bad at taxing that section of wealth that is well able to carry its share burden.
The capital transfer tax has been a sad experience for the Opposition. It has been a hate symbol for Conservative Members. When it was introduced 10 years ago, I and a large section of the Labour party had high hopes for it. My right hon. Friend the Member for Leeds, East (Mr. Healey) said that it would produce howls of anguish from the rich, yet we have been disappointed because capital has borne a diminishing share of taxation. In 1968–69, estate duties amounted to 7 per cent. of the Government's total income from tax. In 1982–83, with capital transfer tax, the income amounted to 1·1 per cent. Thus, there has been a substantial reduction in the tax share carried by capital.
That decline in the capital share of the tax burden puts Britain, as has been pointed out, at the bottom end of the table for capital contributing to taxation. A far lower proportion of capital contributes to taxation in Britain than is the case in Belgium, France and most other Common Market countries, with the exception of Ireland.

Mr. Fisher: What about Greece?

Mr. Mitchell: The capital tax share in Britain is certainly substantially lower than that in Greece.
There are numerous reasons for the failure of capital transfer tax. In a sense, the tax was introduced a little too speedily. In an article in the Financial Times of 24 March 1984, Lord Barnett admitted that the speed with which it had been introduced had made it more complicated and less effective than it might have been. We had to face a continuous barrage from the tax fiddlers' party, which is ably represented tonight, and from people who have dedicated their lives to doing well for capital and to providing loopholes and all the little fiddles through which capital creeps out. They are skilled at that sort of thing.
I must admit that the Labour party does not have the expertise in tax matters that we need. Conservative


Members should not worry, though, because we shall develop it. When capital transfer tax was introduced, immediate concessions were made. There were mistakes such as a reduced rate on lifetime transfers and an unlimited exemption for gifts between spouses. Given the need to shake up capital and to provide more dynamic in society, the major reductions in the taxable value of farms and small businesses were also a mistake.
In 1976–77, I was involved for the first time in a Finance Bill, having been persuaded by the Labour party Whip that it was an honour to take part in it. That was two weeks after I had been elected to Parliament. I must say, I learnt very rapidly. I watched that process of exemption for land and small businesses. It defeated what I saw as one of CTT's main objectives, which was to shake up capital and to get it to change hands. I wanted to give it more vigour, and to put it into new hands, so getting the dead wood out. But that objective was not helped by the exemptions.
Since 1979, the Conservative party has been in office, and we have had the sordid sad spectacle of it taking the teeth and guts out of CTT. [Interruption.] This is not a requiem to CTT, as it still has life. However, Labour Members should look at the whole structure of capital taxation. That will almost certainly mean a wealth tax. I do not know whether that means a revived and strengthened CTT or a return to death duties, coupled with a simpler gift tax. However, the taxation of capital and wealth must be one of our priorities when we form the Government after the next election. By taking the teeth out of CTT and allowing capital to escape so easily, by putting the burden increasingly on the poor and removing it from the shoulders of the wealthy, Conservative Members will have brought such changes on themselves.

Mr. Bell: On a point of order, Mr. Armstrong. I am a new Member of the House, and perhaps you could give me some guidance. I was under the impression that one was not allowed to speak from the Cross-Bench seats as they are not part of the House of Commons.

The First Deputy Chairman: No one has spoken to the House from those seats.

Mr. Peter Rees: Labour Members have tried to flog a bit of life into what was otherwise a rather dispiriting exercise from the Opposition side. I suppose that, adopting the purple prose of the hon. Member for Workington (Mr. Campbell-Savours), I must regard myself as part of the festering, sordid under-belly of the Conservative party. I bear that with as much equanimity as I can, and I look forward to some equally highly charged prose in our encounters in Committee Room 10. It might add a little life to our proceedings.
What saddens me is that Opposition Members are right to say that this has become an annual ritual. The phrases and sentiments from the Opposition never vary. It is a pity that we cannot have a rational debate about the balance of taxation between capital and income, and the consequences of any course of action. Instead we have highly charged speeches which I do not believe Opposition Members take seriously.

Dr. McDonald: Yes, we do.

Mr. Rees: The hon. Lady says that she takes them seriously. The kindest thing that I could say about her

speech was that it seemed to be a series of newspaper articles cobbled together. She can prove me wrong in Committee with her formidable command of the details of fiscal legislation, but I doubt whether the inwardness of her speech made a great impact on her.
The principal theme of the hon. Lady's speech was that capital transfer tax is now completely ineffective. I look back with some nostalgia to 1974 and 1975, when I and some of my hon. Friends obviously spent far too much time discussing this tax. I was interested to read, as no doubt was the Committee, the candid and charming admissions of Lord Barnett that the tax was not well thought out, not well put together, and not well defended on that occasion. It was a commentary on that Administration and their endeavours in this area.
I remind the Committee that the majority of the reliefs to which the hon. Lady and her hon. Friends have taken exception were introduced into the tax during those debates. I was especially interested in the statement of the hon. Member for Great Grimsby (Mr. Mitchell), speaking with all the authority of an Opposition Whip and presumably, therefore, enunciating Labour party policy, that a future Labour Government would have nothing to do with gifts between spouses. The sentiments which I respected and which led the right hon. Member for Leeds, East (Mr. Healey) to introduce the tax are evidently no longer current in the rather harsher climate prevailing in the Labour party.

Mr. Campbell-Savours: That is not what he said.

Mr. Rees: That is what can reasonably be inferred from what the hon. Gentleman said. I should prefer to debate this matter with the hon. Member for Workington when he is standing, not sitting down.

Mr. Campbell-Savours: That is not Labour party policy.

Mr. Rees: Then I am reassured. If it is not Labour party policy, I do not know what the hon. Member for Great Grimsby was complaining about. Perhaps I am attaching too much significance to his words. Perhaps he thought that he would help the debate along and that, to make an amusing exchange, he would cast off a few frivolous ideas. He made great play of dynamism, and I take his point. How far should a fiscal system be designed to encourage a dynamic society and economy?
That would be an interesting subject for a debate, and it was precisely that sort of consideration, as I recall from our debates on the introduction of capital transfer tax, which led the right hon. Member for Ashton-under-Lyne (Mr. Sheldon)—or it might have been Lord Barnett, as he now is—to introduce an amendment at a late stage reducing the rate of tax on lifetime gifts to encourage people to pass on their capital so as to make a more dynamic economy, and so that capital would not be retained by older members of society. I do not know whether the hon. Gentleman still approves of that relief. He told us that the Labour party's policy does not embrace the abolition of relief on lifetime gifts. Apparently he personally is moving away from the idea of a reduced rate on lifetime gifts. There is a serious theme underlying this which was picked up by his right hon. Friends when we debated these matters between 1974 and 1975.
11 pm
Coming back to the hon. Lady's main theme, which is that capital transfer tax is now a totally ineffective tax ripe


for the final chop, some of my hon. Friends might wish that that were so, but I should like to give the yield figures. The highest yield under the Labour Administration was in 1977–78, when the figure was £398 million. Adjusted to 1984–85 figures that would be £758 million. The yield on capital transfer tax in 1983–84 was £610 million. In 1984–85, assuming that the amendments we propose commend themselves to the Committee, the yield will be £680 million. That is less than £758 million, but not by a great deal. For the hon. Lady to suggest that the tax has been robbed of all effect does not seem right.

Dr. McDonald: The Chief Secretary knows full well that he is making a spurious point and that the figures relating to the amount of revenue collected from capital transfer tax during the term of the Labour Government were for a transitional period. As the Inland Revenue has itself stated, this was a transitional period when estate duty was being phased out and capital transfer tax was in the process of replacing it. The point is not the amount, be it £500 million or over £600 million as is expected this year, but the proportion of total revenue which capital transfer tax constitutes. If the Chief Secretary takes that figure for comparison he will find that it is much lower under this Government.

Mr. Rees: I am sorry, but the hon. Lady does not support the point that she is endeavouring to make. The simple test of whether a tax is more or less effective than when it was introduced is the yield. I have given the yield figures. If the hon. Lady wishes to put down a question to me to amplify the point I shall endeavour to answer it. She has now shifted her ground very adroitly, as one expects of such a charming hon. Lady, to a different point. I have to give the figures as I know them.

Dr. McDonald: I gave those figures.

Mr. Rees: I am deeply apologetic to hon. Members if I bore them by giving the figures twice over. They do not support the conclusion that the hon. Lady is endeavouring to draw. The right hon. Member for Llanelli (Mr. Davies) knows a little about this tax, because he and I sparred for many long hours during the winter of 1974–75. He will recall the difficulties and imperfections of the tax and the very eloquent way in which he and his right hon. Friend introduced the reliefs of which the hon. Member for Great Grimsby now complains. I know that the Labour party is shifting its complexion and its ideas. There will be a rather cold frisson in the country when we hear from the hon. Member for Thurrock (Dr. McDonald) that the whole capital taxation system will be reviewed. We shall probe in these annual exchanges just how far the thinking of the Labour party has progressed, if it has. I suggest that it has probably regressed. I suspect that the Labour party has learnt nothing from its experience in power and from its fiscal mistakes.

Mr. Kirkwood: While we are thinking about potential reviews, may I insinuate the thought into the heads of those on the Treasury Bench that we on these Benches — [HON. MEMBERS: "We? Who are 'We'?"]. I have been sitting here since 4 pm. I have been here minute by minute through the Committee stage. It ill behoves Conservative Members to come in now and criticise me—

Mr. David Harris: On a point of order, Mr. Armstrong. Is it in order for the hon. Gentleman to use the royal "we", when he is alone on the Liberal Benches?

The First Deputy Chairman: Order. The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) is completely in order.

Mr. Kirkwood: May I insinuate the thought into the Treasury Bench's head that a far better way of redistributing wealth, in terms of the sorts of taxes that we are talking about, would be to move towards an accessions tax, which would put the burden on beneficiaries?

Mr. Rees: I am tempted to respond to the hon. Gentleman, because that is a serious matter which we have debated in the Conservative party and in the House of Commons, but I suspect that I would be out of order if I succumbed to that temptation. Many continental countries have a form of accessions tax and consanguinity reliefs which are much more generous than anything on offer here. I say that in the knowledge that some of my hon. Friends may think that we have not gone far enough in the Bill.
Let me put our proposals in perspective. We have heard many highly charged statements from the Opposition, but the cost of our proposals—over the indexation of the various bands—

Mr. Campbell-Savours: Give us the cash figures.

Mr. Rees: If the hon. Member for Workington wants inflation to complete the work that his right hon. Friend the Member for Leeds, East failed to do, he will get no support from the Government and he should not get support from his hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) who, with Mrs. Audrey Wise, of late lamented memory, and my right hon. Friend the Chancellor of the Exchequer thought it right to index The income tax thresholds. If that 'was right for income tax, it must, in equity and fairness, be right for capital taxes. Over and above the indexation of the various bands, the cost for 1984–85 will be £3 million. For a full year, it will be £9 million.

Mr. Campbell-Savours: Will the Chief Secretary give way?

Mr. Rees: No. I know that the hon. Gentleman gets a little over-excited in these debates. [HON. MEMBERS: "Oh."] When the hon. Gentleman describes me as the festering, sordid under-belly of the Conservative party, I am entitled to say that he gets a little over-excited.
The hon. Member for Thurrock said that if we had only devoted those sums to the lower paid we could have achieved a social and economic revolution. If hon. Members will recall that we have devoted slightly less than £2 billion to raising the threshold of income tax, taking 850,000 people out of tax next year, that will show the spurious nature of the points made by the Opposition.

Mr. Fisher: Will the Chief Secretary give way?

Mr. Rees: Well, I respect the hon. Gentleman and his father. We have had many interesting debates.

Mr. Fisher: Although the Chief Secretary has failed to give my hon. Friend the Member for Workington (Mr. Campbell-Savours) the cash figure for which he has asked, he has been well briefed, and we are grateful for that. However, it does him no credit to drag out the tawdry and


ill-considered figure of 850,000. As the right hon. and learned Gentleman knows, the vast majority of those people fell into tax only last year. It is not a real figure at all. The right hon. and learned Gentleman should come clean about it.

Mr. Rees: The figure will be very real to those who are taken out of charge to tax. Nothing that the hon. Gentleman says will persuade me to the contrary.
My point is that if the Committee compares the resources which the Government are devoting to raising the thresholds for income tax with what we are devoting to ameliorating the burden of capital taxation, it will be realised that we have been more than even-handed in our fiscal approach. All the bogus and highly charged points made by Opposition Members are just part of an annual ritual exchange. I ask the Committee, the House and the country to consider the facts and to support us wholeheartedly in our endeavours to make a little more sense of a rather ill-conceived tax.

Dr. McDonald: We have listened again to the endless outpourings of the Chief Secretary, which have not answered any of the points that we have made. He says that 850,000 will be brought out of taxation by the Government's measures this year, but 550,000 of them would have been taken out of taxation by indexing in any case. He says that a married couple will gain about £2 per week. Much of that money will be taken back by increases in VAT on take-away food and other tax increases. The Chief Secretary, and other Conservative Members, would do well to consider the tax burden on families of VAT, income tax and customs and excise duties. The Chief Secretary should study the figures, and see what those increases in indirect taxation, including VAT will mean to many families.
The Chief Secretary talks about the annual debate on reducing the rates of capital transfer tax and raising the thresholds. There would not need to be an annual debate, if the Government had the courage to carry out the commitment that the Prime Minister gave in opposition and repealed CTT altogether. The Government do not have the nerve to do that, because they know how much opposition there would be throughout the country. They prefer to hold an annual debate at a late hour and to hope that the public will not notice—[Interruption.] It is the Government who select the clauses and the days. Hon. Gentlemen should find out something about the procedure. We should have preferred the debate to take place earlier in the day, or indeed on another day, as it could have done if the Government had provided more days for the Committee stage on the floor of the House. Right hon. and hon. Gentlemen would rather hold the debate at a late hour. They hope that the public will not notice that taxes on capital are being decreased, while the burden on wage-earners has increased steadily since 1979, and the Government are still holding to the same practices and policies. That is why we oppose clause 98.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 108, Noes 13.

Division No. 281]
[11.14 pm


 align="center">AYES


Amess, David
Howell, Ralph (N Norfolk)


Ashby, David
Hunter, Andrew


Baker, Nicholas (N Dorset)
Jackson, Robert


Baldry, Anthony
Jessel, Toby


Bellingham, Henry
Jones, Gwilym (Cardiff N)


Benyon, William
Jones, Robert (W Herts)


Biggs-Davison, Sir John
Kershaw, Sir Anthony


Boscawen, Hon Robert
Key, Robert


Bowden, Gerald (Dulwich)
Knight, Gregory (Derby N)


Bright, Graham
Lawler, Geoffrey


Brinton, Tim
Lennox-Boyd, Hon Mark


Brooke, Hon Peter
Lester, Jim


Brown, M. (Brigg &amp; Cl'thpes)
Lyell, Nicholas


Buck, Sir Antony
Major, John


Butterfill, John
Mather, Carol


Carlisle, Kenneth (Lincoln)
Miller, Hal (B'grove)


Chapman, Sydney
Moore, John


Chope, Christopher
Moynihan, Hon C.


Clegg, Sir Walter
Murphy, Christopher


Conway, Derek
Neubert, Michael


Coombs, Simon
Rathbone, Tim


Cope, John
Rees, Rt Hon Peter (Dover)


Couchman, James
Renton, Tim


Cranborne, Viscount
Rhodes James, Robert


Currie, Mrs Edwina
Roe, Mrs Marion


Dunn, Robert
Ryder, Richard


Eggar, Tim
Sackville, Hon Thomas


Evennett, David
Sainsbury, Hon Timothy


Fallon, Michael
Shelton, William (Streatham)


Farr, John
Sims, Roger


Finsberg, Sir Geoffrey
Smith, Tim (Beaconsfield)


Forman, Nigel
Soames, Hon Nicholas


Forth, Eric
Spencer, Derek


Fraser, Peter (Angus East)
Spicer, Jim (W Dorset)


Freeman, Roger
Squire, Robin


Galley, Roy
Stanbrook, Ivor


Goodlad, Alastair
Stevens, Martin (Fulham)


Gow, Ian
Stewart, Ian (N Hertf'dshire)


Gregory, Conal
Sumberg, David


Griffiths, Peter (Portsm'th N)
Thomas, Rt Hon Peter


Grist, Ian
Thompson, Donald (Calder V)


Ground, Patrick
Thompson, Patrick (N'ich N)


Hamilton, Neil (Tatton)
Tracey, Richard


Harris, David
Twinn, Dr Ian


Hawkins, Sir Paul (SW N'folk)
Viggers, Peter


Hayes, J.
Waddington, David


Hayward, Robert
Wakeham, Rt Hon John


Heathcoat-Amory, David
Walden, George


Heddle, John
Wardle, C. (Bexhill)


Hickmet, Richard
Whitfield, John


Hogg, Hon Douglas (Gr'th'm)
Whitney, Raymond


Holt, Richard
Wolfson, Mark


Hooson, Tom
Howard, Michael



Tellers for the Ayes:


Howarth, Alan (Stratf'd-on-A)
Mr. Archie Hamilton and


Howell, Rt Hon D. (G'Idford)
Mr. David Hunt.




NOES


Bell, Stuart
Kirkwood, Archibald


Bermingham, Gerald
McDonald, Dr Oonagh


Campbell-Savours, Dale
McWilliam, John


Cocks, Rt Hon M. (Bristol S.)
Skinner, Dennis



Cohen, Harry


Cook, Frank (Stockton North)
Tellers for the Noes:


Davies, Rt Hon Denzil (L'lli)
Mr. Austin Mitchell and


Davis, Terry (B'ham, H'ge H'l)
Mr. Frank Haynes.


Fisher, Mark

Question accordingly agreed to.

Clause 98 ordered to stand part of the Bill.

Clause 105 ordered to stand part of the Bill.

Bill (Clauses 10, 17, 18, 20, 21, 27, 57, 98, 105, 113; and Schedules 6 to 8 and 12), reported, with amendments; to lie upon the Table.

Radioactive Waste (Disposal)

Motion made, and Question proposed, That this House do now adjourn.—/Mr. Sainsbury.]

Mr. Frank Cook: I am most grateful for the opportunity to raise with the House the subject of radioactive waste and its disposal. In doing so, I seek not only to discuss the issues of its proposed deposition in the disused anhydrite mine at Billingham but also to examine some of the broader aspects that have a direct bearing on the subject. Because of the constraints on time I must assume that the House has knowledge of the different types of radiation, their varying characteristics, their penetrating power and their potential toxicity.
Radiation can be borne by wind, water, land, food, clothing and vehicle. Radiation can cross a vacuum. Radiation poses not only a threat to those generations living today but an increasing threat to those generations yet unborn. Sister Doctor Rosalie Bertell, the eminent American commentator on radiation and human health, in describing the effect of radiation penetration on the DNA in the cells of reproductive organs of people of suitable age, refers to the continuing and growing effect in following generations. She has classified that as a form of insidious species death. Furthermore, the Minister may be interested to learn of investigations that she is conducting into a theory developed by an eminent German scientist at Karlsruhe who has postulated that gaseous beta emissions from nuclear installations can be the possible cause of acid rain and its predominance in the past 30 years. However, we must await the results of her experimentation before we can examine that more closely.
It would seem sensible, then, that, as we already have radwaste from a whole range of sources, we do not scatter it around the countryside but store it as far away from people as possible and monitor it carefully so that we can retrieve it and repackage it should it become unsafe due to the deterioration of its containment.
Such sense, however, has no appeal for NIREX. That is the agency given responsibility for examining the issue. It is the agency established by the "In-Club" of the Industry. It is the industry responsible for radwaste production permitting proposals that are frankly irresponsible.
NIREX plans to place the high level intermediate level waste immediately below a community of 35,000 people in a surrounding population approaching 750,000.
To counter opposition to this preposterous proposition, NIREX constantly changes its tune and switches its approach. It is consistent only in its inconsistency.
Because of the time I shall give but two instances. NIREX originally said — this was confirmed by the Secretary of State in this very Chamber — that two planning applications would be necessary. One would be to determine the mine's suitability and the second to consider deposition specifically. In fact, the Minister stated that both applications would be "called in". Since the ICI statement of opposition NIREX has told me that it may well be able to assess the mine's suitability on the basis of published data, so that the first planning application could be rendered unnecessary. It is saying that 12-year old information can be used to avoid a public inquiry. I understand that on this morning's radio

programme, "Rollercoaster" Mr. Giddes stated categorically that one planning application is needed. I seek from the Minister an unequivocal assurance that this will not happen.
NIREX was originally required to examine a range of possible sites and publish a shortlist of its preferences. It appears that underground disposal was presumed the best from the outset. Its only shortlist has been a "short list one" — one for high level intermediate waste at Billingham and one for low level intermediate waste at Elstow in Bedfordshire. NIREX has resolutely refused to fulfil its remit and publish other preferred locations as required.
I must remind the Minister, respectfully, that on the occasion of our last private interview on this subject on Monday 2 April his Permanent Secretary offered the commitment, and repeated it when pressed, that NIREX would be compelled within a matter of weeks to make public the balance of its preferences.
I ask respectfully that the Minister kindly expedites such publication so that other communities and, indeed, other Members of this House, representing constituencies under a threat presently hidden, may enjoin with us in pressing for the closer examination of methods other than underground dumping. There are alternatives and they must be considered carefully.
Indeed, it was reassuring to read in last Monday's copy of The Guardian reports that Dr. C. P. Haigh, a senior scientist with CEGB, has issued a memorandum advocating treatment similar to that which I have been urging for more than a year. Such proposals have already been discarded by NIREX after somewhat scant examination.
Pressure for examination of alternatives and opposition to the NIREX plan is considerable and growing constantly as more information is disclosed.
Tomorrow morning I shall be formally presenting to this House a petition from my parish. Tomorrow afternoon, some of my constituents and fellow Members from both sides of this Chamber, will present a petition signed by about 85,000 Clevelanders to the Prime Minister's Office in No. 10 Downing street. As we sit here early day motion 514, expressing opposition, bears 126 signatures and that total climbs steadily.
Yet this opposition, popular though it is, has to fund its campaign from the private pocket of public subscription. While BAND—Billingham Against Nuclear Dumping—runs coffee mornings, cabarets and collections to raise cash, NIREX simply engages the services of a city firm of public relations consultants on an annual budget of £240,000 to persuade the people of Billingham that they have got it wrong and that NIREX has got it right.
If these proposals go to public inquiry, NIREX will have almost unlimited resource coming indirectly from public funds via the CEGB. Will the Minister consider seriously the provision of funding for local councils and environmentalist groups to ensure that any inquiry is genuinely balanced?
I am told that the strength of opposition displayed by the Cleveland community has caused surprise in some quarters. If that is true, it can only be because it was thought that Stocktonians could be contained in ignorance indefinitely. Thankfully, that is not so.
We have learned that, according to the Radioactive Substances Act 1960, the average effective dose equivalent from all sources, excluding natural background


radiation and medical procedures, to representative members of a critical group of general public shall not exceed 5 mSv, or 0·5 rem, in any one year.
To the uninitiated, that is the equivalent in terms of a bone marrow dose, of 100 chest x-rays per year, two per week. By comparison with the maximum dose to a member of the public of 5 mSv, the maximum dose to a radiation worker is 50 mSv. That is the equivalent, in terms of a bone marrow dose, of 1,000 chest x-rays per year or three per day.
Is this in accord with that Act's requirement that radiation exposure of individuals, and the collective dose to the population arising from radioactive waste, shall be reduced to levels which are as low "as reasonably achievable?" Can we be saying seriously that three chest x-rays per day is ALARA? Are we mad?
Clevelanders have also learned that these principles are accepted by the United Kingdom on the recommendation of the International Commission on Radiological Protection, frequently called ICRP. But they learn, too, the nature of ICRP: that it claims origins dated 1928, when in fact it was founded in 1952; that members can only become members only by invitation; that it will allow membership only from vested interests; and that as an organisation it is quite unscientific in that it not only fails to encourage comment from other disciplines but positively disallows it. So we have a somewhat pathetic tapestry of practitioners of this industry dreaming up a standard, toddling off to ICRP to peddle it, and returning in triumph to proclaim its international acceptability. That is not good enough.
The ICRP is self-justifying, self-generating and incestuous, as, indeed, are both NIREX and the NRPB, but not to the same extent. I urge the Minister to press most strenuously for the inclusion on all such bodies of suitably qualified commentators representing interests not vested in the industry. Until we achieve that, the whole game is nothing more than a sham.
Clevelanders have further learned that the prospect of the implementation of NIREX's proposals could have greviously adverse effects on the regional economy. We have evidence of the serious effect on land values, house purchase, industrial development and job provision, all directly attributable to this nonsensical idea. Some developers have denied a link between the circumstances, but when examined closely such denials do not withstand scrutiny. Sadly, time does not allow me to outline that as fully as I would have liked.
Finally, I shall deal with the political aspects of the proposals. Clevelanders do not need the proposed site. They do not want it, and furthermore they will not have it. They already tolerate more than 14-5 per cent. of the nation's registrable hazardous locations, one in seven of Britain's gigantic dangerous dustbins. They do not like that, but they tolerate it. They do so because the hazardous chemicals and the like were produced in the area. Their production provided employment and a degree of prosperity, however limited, for the whole community. This radwaste is unwanted and it is quite alien. The proposals are so wrong that they verge on the unbelievable apart from their being unacceptable. They are wrong technically, environmentally, economically, socially, legally and politically. The councils say so, the churches say so, IC says so and industry generally says so. The

people say so. The Government may choose to disagree, but they must listen. In the name of all that is good in creation, they must listen. The wishes of the Clevelanders must be paramount.
11.41 pm

Mr. Nicholas Lyell (Mid-Bedfordshire): I am extremely grateful to the hon. Member for Stockton, North (Mr. Cook) for providing me with the opportunity to join him to make briefly three important points on behalf of Elstow in my constituency, which has had the misfortune to be chosen—it seems almost by means of a pin—by NIREX as the site of a nuclear dump for low and short-life and intermediate level nuclear waste.
I ask the Department of the Environment, which is represented this evening by my hon. Friend the Parliamentary Under-Secretary of State for the Environment, to give careful consideration to three matters before it encourages NIREX to proceed further down the road that it has chosen. First, would not NIREX be better advised to make a comparative study of the suitability of a number of sites instead of plucking a single site from the air, as it were? Secondly, whatever the views of the experts may turn out to be in future, it must be borne in mind that we are dealing with a problem where our knowledge is only at an early stage of development. Would not NIREX be much wiser carefully to evaluate sites and to choose a site which is remote from any centre of population, rather than a site such as Elstow which is so close to substantial centres of population? As in Billingham, there is overwhelming opposition from the local people of the Elstow area and the likelihood of great anxiety whatever the experts may tell us.
Thirdly, does my hon. Friend agree that it is wrong to confine the choice of site to sites such as Elstow, which happen to be in the ownership of one of the sponsor bodies for NIREX? Surely it would be right to undertake a careful survey to find the best site nationally, even if it requied compulsory purchase.
I repeat that I am most grateful to the hon. Member for Stockton, North for giving me the opportunity to intervene briefly in his Adjournment debate. My constituents and I will be most grateful if in his reply my hon. Friend the Minister can respond to the three matters that I have raised.

The Parliamentary Under-Secretary of State for the Environment (Mr. William Waldegrave): I have to respond to the many issues raised by the hon. Member for Stockton, North (Mr. Cook) and my hon. and learned Friend the Member for Mid-Bedfordshire (Mr. Lyell), and I hope that they will accept my assurance that if I omit to deal with any of them in this response I shall take care to scan Hansard and respond by letter.
I congratulate the hon. Member for Stockton, North on securing this debate. His passion in putting forward the argument which he believes is respected by the House and his personal courtesy to those with whom he deals never deserts him, though the heat of his argument is always powerful. He is right to say that the issue that he has raised is a matter of widespread concern in the area which he represents. That is reflected by the presence of my hon. Friend the Member for Langbaurgh (Mr. Holt), who has also made representations. I hope that the hon. Gentleman, my hon. and learned Friend and my hon. Friend will


acknowledge and accept that Ministers of both Labour and Conservative Governments have tried to grapple with the difficult problems that are involved and have done so with equal care.
I hope that the hon. Member for Stockton, North will not spoil a powerful case which he must wish to put forward with every form of the considerable eloquence at his disposal, by attacking—I am sure that he does not mean to do so—the motives of the many thousands of men and women who work in the civil nuclear industry and who are doing what they regard as their best to produce balanced and careful judgments.
Successive Governments have recognised that, as nuclear power is here to stay in the foreseeable future, whatever the decisions made now, we must take sensible action on wastes. The Royal Commission on Environmental Pollution in its recently published tenth report acknowledged that it would be wrong to discard the experience and expertise gained from several decades of nuclear power development. The Royal Commission proceeded to show its strong support for a modest increase in nuclear power capacity. The Royal Commission, however, recognised and expressed respect for the worry that many people voice about aspects of the nuclear power programme. How to deal safely with radioactive waste is perhaps its principal concern. My ministerial colleagues and I have great respect for those worries.
Eight years ago, the sixth report of the Royal Commission started us on the process we now face. The Royal Commission effectively criticised all of us for not at that time having paid sufficient attention to the problems of waste, and it made a number of recommendations. Positive steps were taken by the Labour Government of the day in response to those recommendations. It is fair to say that there has been considerable continuity in the approach of successive Governments of both persuasions to radioactive waste management. NIREX was set up. The Radioactive Waste Management Advisory Committee was established. The responsibilities of the Secretary of State for the Environment to deal with waste management policy were separated from those of the Secretary of State for Energy. I believe that those decisions were accepted by the House.
The 1982 White Paper published decisions on the storage of high level waste which had until then been stored in stainless steel tanks for 25 years. The White Paper stated also that steps should be put in train to deal with intermediate waste, and I believe that that aim was acceptable to the House. The right hon. Member for Birmingham, Small Heath (Mr. Howell) welcomed the White Paper generally. That is not to say that individual decisions about sites and the ways we set about finding them and letting people make representations about them must not be taken with the greatest care.
The hon. Member for Stockton, North referred to The Guardian article, which the Government have studied. That article was specifically about the possibility of sealing redundant nuclear power stations. I believe that the hon. Gentleman will accept that, although that plan would deal with a great number of the intermediate wastes, we would still need to deal with others.
NIREX so far, as the hon. Gentleman well knows—no one knows better about its activities — has spent about a year on desk studies. NIREX said that it identified

two sites that looked promising. Hon. Members from constituencies that include those sites have spoken in the debate tonight. Elstow in Bedfordshire is one, and the former ICI anhydrite mine at Billingham is the other.
I make it clear that NIREX has not put forward any firm or formal proposals for either the Billingham site or the clay beds at Elstow. They are possibilities which, because of their geology NIREX is considering. NIREX will continue to evaluate possible disposal sites in addition to those two sites. Any further sites that NIREX identifies as potentially suitable will be announced as well. I regret that I cannot yet give the hon. Member for Stockton, North a date for that announcement. I hope that when we spoke about the matter I made it clear to the hon. Gentleman that if a planning application is made under the procedures that we envisage alternative sites would have to be named.
I hope that I can set the hon. Gentleman's mind at rest on another point. He expressed the fear that NIREX might rely on geological data already available, and proceed to specific proposals without undertaking geological investigations and, therefore, without any need to apply for planning permission. I can assure him that, while such existing data might be adequate in theory for the assessment of what I believe is known in technical terminology as the near field, they would not provide information about what is known as the far field—the area around the mine itself. Therefore, a certain amount of geological investigation would be necessary to confirm the characteristics of the far field. Such investigations would be subject to planning procedures. I hope that that puts the hon. Gentleman's mind at rest.
We shall assess specific proposals from NIREX very carefully indeed. To that end we have recently concluded a public consultation exercise on the draft principles that authorising Departments would apply to proposals from the Executive. My Department is now considering the comments received. The draft assessment principles will be revised in the light of those comments and the advice of the radioactive waste management advisory committee. The final version will be available later this year.
My hon. and learned Friend the Member for Mid-Bedfordshire referred to one point that has been raised in a number of submissions, which is the size of population in the area of the disposal facility. That point will be considered in our review of the principles.
We would all like to have longer to debate these matters. I shall pass over the comments I would have liked to have made about the International Commission on Radiological Protection, although I would want to defend that organisation from some of the attacks on it by the hon. Member for Stockton, North. The most important point is that we are reaching the view that we should not take the ICRP limit as the be all and end all. We try to work to about one tenth of the ICRP limit if possible. Hon. Members will know that we have been involved in such matters at Sellafield.
I assure hon. Members with an interest in the matter that both in delegations to us and in the debate tonight their voices are closely listened to by Ministers. I think that that was the principal message that the hon. Member for Stockton, North gave us. We respect that message.
Question put and agreed to.
Adjourned accordingly at eight minutes to Twelve o' clock.